Research On FDI Spillover Effects From The Financial Development Perspective

In recent years, foreign analysis of the role of financial development or financial markets to FDI in promoting economic growth have gradually increased, and their theoretical literature are based on two aspects:1. On the basis of endogenous growth theory, as a representative of the advanced productive forces, the more the number of FDI (investment or capital), the more domestic enterprises are likely to use the technology spillover effect of foreign capital, so the accumulation of knowledge of the host country can be increased. If FDI brings greater proportion of foreign capital, then the host country's economic will grow faster. 2. The theory of financial development emphasized on the effect of financial development to economic growth, however, the endogenous growth theory can also explain the role of financial development to scientific and technological progress, and the financial sector has impact on economic growth by improving the level of technological advancement, for example, the development of financial department can improve financial savings and the savings - investment conversion rate, thereby increasing the investment, and the increased investment will allow expansion of output growth, and with the development of financial system and human capital and R&D capital, the level of the production efficiency can be greatly enhanced, all of these aspects can contribute to fast pace of the economy thereby. In short, these studies focused on literature of the financial system development will bring about the promotion of FDI spillover effects, thus speeding up the host country's economic growth.On the other hand, literature on the FDI spillover at home and abroad can be described as voluminous, in which the study about absorptive capacity in recent years undoubtedly provides a new perspective for examining spillover effects of FDI. In the context of host country absorptive capacity of FDI, the current theories mainly carried research from human capital investment, trade openness, industrial linkage, but the literature on the impact of financial markets to FDI absorptive capacity are rare.Aimed at the defects of the existing FDI literature study of the absorptive capacity's lacking the factor for the financial markets, this article gave expansion of foreign literature on the role of financial development or financial markets to promote economic growth through FDI , focusing in-depth analysis of financial development (mainly the financial markets, Development) to the FDI spillover effects. FDI growth will promote economic growth, and this effect depends on the extent of the technology and knowledge inherent in FDI spillover into reality, and it depends on a country's level of development of financial systems and financial market efficiency.The level of financial development affect the optimal level of institutional environment in the host country, while domestic financial markets affect FDI spillover effects through channels such as the promotion of capital formation, promotion of employment and improvement of the level of human capital, and promotion of technology and improving the efficiency of investment. The more robust financial system, the higher the efficiency of financial markets, the more fully FDI spillover effects to the contribution to economic growth.Based on theory analyze, this paper carried empirical study on the relationship between the financial development and FDI spillover effects, and the study included two levels of direct examination and comparison testing, namely, three countries-- China, the United States and India, were compared and comparison test of different Chinese provinces'dates were made to study the different roles of the developed and underdeveloped financial markets to the FDI spillover effects. By comparison, this paper found that compared to the United States, China and India's financial markets can not promote FDI spillover effects effectively, while to a certain extent the relatively well-established financial markets of the U.S. facilitated the spillover effects of FDI and promoted economic growth. This paper carried empirical test using dates of 28 provinces of China, and found that a relatively well-developed financial market in the eastern part of China had promoted the local economy for FDI spillover effects of the absorptive capacity; and financial markets of underdeveloped central and western regions failed to promote the local economy for the absorptive capacity of FDI spillover effects. But overall, China's financial market had not significantly promoted FDI spillover effects.The results of this study showed that the financial markets played an important role to promote FDI spillover effects and to promote economic growth in different countries. Because of China's underdeveloped financial market, FDI spillover effects did not play a significant role to economic growth. So we need to further improve China's financial markets and increase financial support. This article concluded with specific recommendations about how to further develop China's financial system and a sound financial market in order to promote the spillover effects of FDI.