A Study On The FDI And Economic Growth

The coordinated development of regional economy is one of the most importantgoals to achieve in the process of continuously pushing forward the rapid and healthydevelopment of the economy. Since the founding of the PRC, China’s economy hasmaintained a sustained and rapid growth. Especially with the deepening of reform andopening up, the promoting wave of global economic integration, the national andregional economies are showing a strong momentum of growth. However, at the sametime, the foreign direct investment (FDI) which can reflect the degree of economicopenness of different areas are different, and the regional differences in economicgrowth are more obvious, which make people not only focus on China’s overalleconomic growth but also have to pay attention to the issues of economic differencesamong regions in china and think about whether the economic growth and economicdisparities are affected by the economic globalization.Economic convergence is usually used to solve the issues of sustainability andtransformation of the economic output differences between different countries orregions, and to describe the trend of the economic gap. Neoclassical Growth Theorysuggests that the economic output in the long-term development in different countriesor regions will converge to the same level, i.e. the convergence of economic growth.While Endogenous Economic Growth Theory has questioned that there are technicalexternalities and it can lead to marginal increasing returns of capital, by which we cananalyze the economic growth is of divergence. Since the convergence of relevanttheory, many scholars from various countries give their high enthusiasm for research.Through the test of economic convergence between different countries or areas, wecan obtain the real judgment of the economic gap so as to provide the evidence for theproposed countermeasures and suggestions.Under the above reality and theory background, this paper is studying on theeconomic growth and FDI based on convergence theory to actively guide the FDI toprovide an empirical basis to narrow the gap of regional economic development. Inthe first place, this paper gives an analysis on the differences between the provinces ofChina’s economic growth and FDI in the scale and volume growth. And then it furthertests the convergence, stochastic convergence and deterministic convergence ofthe economic growth and FDI. In addition, through the inspection of the convergence in controlling of the presence or absence of FDI in China and the eastern,central and western regions, it were used to examine the effects of FDI on nationaland regional economic growth and its convergence. This paper also tests the clubconvergence in China. The main research contents and important points of view are as follows:Firstly, this paper takes China’s real per capita GDP in1952-2010as the researchobject. It specifically elaborates on China’s inter-provincial economic gap. Bycalculating the real per capita GDP natural logarithmic standard deviation andcoefficient of variation of real per capita GDP, we can obtain the conclusion ofeconomic growth in China without the presence of convergence. In addition, byusing the smooth transition autoregressive STAR model and nonlinear KSS unit roottest, it considers that more than half of the provinces are nonlinear stochasticconvergence. And the unit root test with smooth structure change shows that14provinces are deterministic convergence with symmetrical convergence speed,16provinces are deterministic convergence with asymmetrical convergence speed.Secondly，this paper studies on the FDI gap based on convergence theory andadopts the testing methods of economic growth convergence to test FDI convergence.As a result, during the period of1987-2010, the differences of our country provincialFDI performance significantly obvious, but the convergence exists. Throughempirical tests, we think that more than half of the provinces are nonlinear stochasticconvergence. And the unit root test with smooth structure change shows that17provinces are FDI deterministic convergence with symmetrical convergence speed,21provinces are FDI deterministic convergence with asymmetrical convergence speed.Finally, after the studying on the FDI and economic growth in China, this papershows that the FDI has a positive role in promoting economic growth, especially tothe east. And it also proves that if the FDI gap is eliminated, the convergence speed (ordivergence speed) of the country, eastern, central or western region can be accelerated(or slowed down). It also considers that club convergence exists in China.Based on the above results this paper puts forward some countermeasures andsuggestions about how to narrow the FDI gap and then narrow the economic gap inorder to provides some revelations for China’s regional economic coordinateddevelopment.