Behavior Mechanisms Of FDI,Constraints Of Knowledge Spillovers And Economic Growth Of Developing Countries

The rapid growth of foreign direct investment (FDI) has had an enormous impact on the development of international trade and world economy. Particularly for developing countries, the FDI from developed countries has showed great influences to their technological level, domestic economy and international competitiveness. From the international experiences, FDI is one of the key factors in the development of the developing countries. Under the theoretical system of foreign direct investment and knowledge spillovers, this dissertation examines the impact of FDI on the host countries by modeling its manifestation, short-term and long-term equilibriums, direct and indirect impacts.The behavior mechanisms of foreign direct investment include the utility target constraint mechanism, the investment-production interaction mechanism, the consumption-output equilibrium mechanism and the capital-knowledge impact mechanism. The utility target constraint mechanism is the process of the mutation of the FDI’s production due to the differences of the utility targets of the FDI and the host; The investment-production interaction mechanism refers to the game process of the FDI and the host in the decision-making of investment environments, investment options, production modes; The consumption-output equilibrium mechanism is the equilibrium condition of the consumption and output of the host under the labor-leisure dilemma equation on the framework of the FDI impacts and knowledge spillovers; The capital-knowledge impact mechanism refers to the impact process of the FDI on the capital, human resources, knowledge development, economic development and social welfare under the framework of knowledge spillovers. The knowledge spillover constraints of developing countries in this dissertation include the host country’s investment environment constraints and absorptive capacity constraints and the FDI’s production factors input constraints and self-protection constraints. The host country’s investment environment constraints refer to the constraints that the FDI input technologies of different levels according to the policies of the host; The host country absorptive capacity constraints refer to the constraints that the host’s learning capacity, which is restricted by its own knowledge, to learn the knowledge from FDI; The FDI’s production factors input constraints are the constraints on knowledge spillovers that the FDI put different factors into production in different periods to maximize its utility; The self-protection constraints of FDI refer to the knowledge learning constraints of the host due to the FDI enterprises putting a certain percentage of production resources into knowledge protection.Under the framework of the FDI behavior mechanisms and knowledge spillover constraints, this dissertation analyzes the impacts of the FDI on the technological progress and economic growth of the host countries, and concludes as follows:(1) Based on the theories of the monopoly advantage and knowledge spillovers of FDI, the modes of the technological progress and economic growth of developing countries are different in different periods of times. FDI enterprises keep inputting human capital to obtain a higher monopoly advantage and profits in the early stage. The host country can improve its technology and economy significantly due to the accumulation of knowledge that can be learned. While when the science and technology of the host country develop to a certain level, the human capital investment of FDI enterprises will decrease. The knowledge spillover at that time has been unable to meet the demand of the host to make technology progress. The host country now should make every effort to raise the level and efficiency of independent research.(2) The main reason of the pheromone of "latecomer advantage" of some developing countries is the production function mutation of FDI which due to the differences of utility target of the FDI and the host countries. The mutation of FDI production function makes the FDI enterprises emphasis on knowledge input on the early time and turn to capital input after the knowledge level reaches a certain level. The mutation of FDI’s production function produces an upper limit of the knowledge level that the FDI willing to bring in and the limit is also the turning point of FDI’s factor inputs. The developing countries can progress rapidly before the turning point because FDI knowledge spillovers but can only rely on independent innovation after.(3) The developing countries should keep improving their investment environments establish their "reputation" in order to attract high quality FDI. However, it is important to note that developing countries should establish punishment rules to make sure that the FDI does not meet the national interests be refused. The FDI into developing countries relative prefer to Greenfield investment while into developed countries to merger and acquisition. In the process of mergers and acquisitions, grasp more information of the other side is the key factor to maximize business interests.(4) In the capital requirement phase of developing countries, the inflow of FDI can ease capital scarcity of the host and be conductive to enhance the scale effect. In the knowledge requirement phase of developing countries, the knowledge requirement of the host countries will be aligned with FDI’s knowledge input at first, which will form a strong support to the development of the host’s technology and economy. But the threshold of FDI knowledge will be reached subsequently, and the effect of knowledge spillover will disappear. Because the problem of domestic capital scarcity has been resolved, the developing countries now should cancel preferential policies on FDI and put moderate restricts to its investment behaviors.(5) The developing countries should depress consumption growth rate to ensure sufficient capital accumulation to stimulate economic growth when their technology level are low. And the knowledge and capital impacts of FDI can enhance their social welfare by the effects of knowledge spillovers and consumption stimulus. While consumption will turn to be the key factor of the economic growth of developing countries after their technology and economy reach certain levels, and the influences of FDI impacts turn to be uncertain. The developing countries need to transform their economic growth mode and set restrictions on the entry of FDI at that time.