Impact Of FDI On Regional Economic Growth And Convergence In China

China has maintained sustained and rapid economic growth for 3 decades since China launched open policy in 1978, and has become one of the those countries that has experienced fastest economic growth. Meanwhile, there is obvious economic imbalance among regions. On the early phase after China's openness, there was significant convergence trend and regional inequality decreases gradually. However, income gap became even larger between many inland regions especially western regions and costal ones after 1990's, which is exactly the period that China has put in place an all-dimensional and wide-ranged opening-up mainly featured by the inflows of foreign direct investment (FDI). FDI observably accelerate China's economic growth, and therefore regional economic development is prominently affected by the regional pattern and performance of FDI. Empirical study proves that the disequilibria of FDI regional distribution is one of the main reasons of current increasingly bigger inequality in China. Accordingly, the research of the impact of FDI on regional economic growth and convergence plays an important role in the investigation of reducing regional disparity and promoting harmonious development among regions in China.The dissertation takes a systematic contemplation of the concept of convergence from the view of neo-classical growth theory and new growth theory, on the basis of which we introduce FDI as a composite variable of capital, labor and technology advance into the endogenous growth models, constructing a framework combined by endogenous growth theory and convergence in the neo-classical model. The model indicates that difference of regional FDI distribution that acts as an important variable influencing the steady state leads to differentiation of growth rate. If regional difference of FDI affecting steady state is eliminated, economy convergences. This model provide a theoretical basis for the empirical study on China's regional convergence from the point of view of FDI.The dissertation computeσconvergence of provincial income per capita in the period between 1978 and 2007 and takes Chow stability test to confirm that regional income disparity takes on a obvious phase divided by the year of 1990 after openness in China. Meanwhile, our country became to increase attracting FDI, which developed into an all-dimensional and wide-ranged period and FDI plays an important role in accelerating regional economic growth. However, the significant disequilibria of FDI regional distribution brings about the investigation that regional diversity of FDI contribution result in the increasing regional economic gap.Based on statistical analysis, we examine the direct effect and indirect effect of FDI on China's economic growth and find that FDI not only conduces to accelerate capital accumulation, employment creation and trade enlargement which promote economic growth directly, but crowd out/ crowd in domestic investment and advance technology progress of enterprises via FDI spillovers driving China's economic growth indirectly. We then estimate and test the direct and indirect economic effect of FDI on economic growth using different production function model with latest balanced provincial panel-data.In the empirical investigation of FDI's impact on regional economic growth, we construct models based on different research aims. We employ a neo-classical growth model with its two factors of national product function decomposed into two sectors- foreign sector and local sector, construct a dynamic investment model investigating crowding-out/ crowding-in effect of FDI, and constitute a FDI spillover effect model taking externality of FDI into account. Estimate of FDI economic contribution based on different regional samples shows that the marginal productivity of capital and labor brought about by FDI is much higher than that of local sector, there existing neutral effect of FDI on China's domestic capital, and FDI possesses positive spillovers in China. From the point of view of regional analysis, FDI in eastern areas has higher direct effect on economic growth and spillovers than other regions, and hence FDI in eastern regions evidently contributes more to regional economic growth than others.Thus we obtain the results that FDI speed up China's economic production via its direct and indirect economic effect prominently, and own greater direct effect than local sector. The empirical finding about FDI's impact on economic growth and contribution difference provides powerful explanation to the enlargement of regional disparity after 1990's in China.In the empirical study of FDI's impact on convergence, we examine theβunconditional convergence,βconditional convergence with FDI as controlling variable, spatial convergence under spatial effect, and club convergence. Results point out that we gain an identical finding ofβunconditional convergence withσconvergence and convergence speed in the same time. After the introduction of FDI variable, estimate ofβconditional convergence shows that with regional diversity of FDI economic contribution, economy present a significant convergences approving that the differential of FDI regional distribution in China enlarge the regional income gap practically. Furthermore, the dissertation upbuilds a spatial autoregressive panel-data model of FDI's impact on China's convergence on the basis of the economic characteristics of conglomeration and gets the results that FDI is conducive toβconditional convergence but the spatial autoregression weaken the impact of FDI on convergence due to economic spillovers among provinces. Therefore, we deduce that traditional model omitting spatial effect overestimate the acceleration of economic variables. Finally, we investigate the club convergence according to compartmentalizing China into three terrains and six zones. Results approve that FDI significantly promote the convergence, or slower the trend of divergence. It shows that eastern and middle terrain represents club convergence, and there exists significant club convergence between Bohai circle, northeastern and Huazhong zone.Accordingly, Chinese government is advised to make efforts improving the quality to employ FDI and in the meantime to take regional discriminative policies attracting FDI. Local government should make full use of FDI technological advantage and spillovers in eastern provinces, improve investment environment in middle and western regions. With regional FDI performance and potential promoted and FDI's impact on regional economic growth enhanced, regional income disparity in China will be reduced and harmonious development among regions will sure be obtained.