| With the rapid development for a long time, China’s economy has become a miracle in the history of economic growth, exploring the source and the mechanism behind China’s economic growth become a hot topic for economists. Moreover, which behind China’s rapid economic growth is a long-term large-scale FDI inflows. Therefore, to better understand China’s economic growth and further promote the sustained growth, it is crucially important for us to understand the economic effect of FDI on industrial development and its mechanism. Most literatures on FDI and economic growth have less considered the effects of host institutional environment on FDI growth effect, and thus inevitably have gained different and even conflicting conclusions. Based on the important perspective of institutional environment, this paper theoretically and empirically analyzes the mechanism and the effects of institutional environment on FDI characteristics and then on FDI economic effect (at the industry level). Firstly, through literature review and statistical analysis, we explore the characteristics of China’s institutional constraints and how institutional environment affect the types and features of China’s FDI flows. Secondly, we analyze the theorical mechanism which institutional environment affect the characteristics of FDI and then affect FDI economic performance at the industry level. Finally, from the two aspects of industrial structure adjustment and industry growth effect, we empirically study the economic effect of FDI under institutional environment. Among them, based on the perspective of spatial economics and institutional constraints, we study the effect of FDI on industrial structure adjustment by using Chinese provincial panel data; Using the system GMM method, we study the effect of institutional environment on the industry growth effect of FDI. In this paper, our conclusions are as following:(1)The economic performance of FDI largely varies from country to country, it is conditional for FDI to promote the host’s growth. To obtain FDI spillovers and FDI technology driven mechanism which the host’s growth need, the host country need reach the thresholds of a certain human resources and financial market efficiency, etc. More importantly, there has been institutional threshold for FDI to promote economic growth by the mechanism of above, institutional environment plays a key role for the economic effects of FDI, the institution quality of host countries and regions is an important factor that affect FDI economic performance.(2) There have been universally institutional distortions in China, which outstand are:the distortion of financial system, regional market segmentation,the distorted government incentive system and the imperfect law and Property rights protection, In transition period, domestic economic institution environment and the evolution of FDI policy have played important effects on FDI inflows in China. The institution distortions grounding in China’s economic internal have a very profound effect on China’s FDI inflows,which lead to the atypical characteristics of FDI. For China’s FDI, the distortions of domestic economic system largely affect the model of FDI inflows, the structure and type of FDI. Overall, because of institutional constraints, China’s FDI flows have showed the characteristics:too-large scale, too small of the whole project, mostly concentrated in the second industry, concentrated in labor-intensive and low technology-intensive departments etc.(3) Based on China’s specific institutional environment, from the perspective of institutional constraints system, we comb systematicly the specific impact of institution on FDI inflows, the scale, the types and so on, and then we propose an analysis framework of environment-strategy-conduction-performance (ESCP). Under the restriction of institution, FDI (enterprises) generally lack of correlation effect, and positive spillovers have affected by the "institution threshold",FDI is easy to generate revenue leakage and so on, which is not conducive overall to industry growth and industry high-level internal process and is not conducive to industrial upgrading adjustment and the change of the pattern of economic development. Serious foreign dependence has inhibited the domestic enterprise innovation, positive spillover effects of FDI have greatly weakened and the negative effects prominent. Specifically, revenue leakage effect leads to industry contractions, the structure solidification effect leads to the second industry internal structure locked in low-end for a long time. Institution is very important for the introduction of foreign capital, in addition to the technical threshold, the positive spillover effect of FDI also has a certain "institution threshold".Of course, FDI influx has played a positive role for China’s economic growth and industrial structure adjustment. But this effect existed in China under the condition of serious instutional distortions, which’s cost is very high. We Should re-examine the mechanism which causes high cost, improve the quality of foreign investment and improve the efficiency of the utilization of foreign capital. In the new period, china’s foreign investment policy should put forward the corresponding control measures based on improving institutional environment.(4) Based on spatial economics, from the perspectives of institutional constraints we comb systematicly the mechanisms of FDI on industrial structure adjustment under the background of China’s special institutions. we select1985-2004provincial panel datas to empirically test the relationships. The estimation results show that the increasing proportion of FDI/GDP contributes to raise the proportion of the tertiary industry in the economic and reduce the proportion of secondary industry in the economy. On the whole, which is conducive to the adjustment of industrial structure, the reducing too-large proportion of the secondary industry, and the adjustment of industrial structure effect of FDI is "inverted U". To mentioned, the effects of FDI on the reducing proportion of secondary industry generate through the income effect eakage, which is very disadvantageous to the Upgrading process of second industry itself.Through capital supply and spillover effects, FDI bring income growth, industry expansion effect and promote industry development, improve the proportion of industry in the economy. At the same time, under the open economy and the institutional constraints, foreign enterprises rarely generate vertical correlation and weak spillover benefits. Excessive dependence on FDI has led to the income leakage effects, the industry shrink and the proportion of industry in the national economy tend to decline. The effect of FDI on industrial structure adjustment depends on both the balance. Therefore, to promote the effect of FDI on industrial structure optimization, we should start according to the two aspects.(5) Institutional constraints will lead to growth effect of FDI greatly reduce or even become negative. In contrast, it will be effectively promote the growth effect of FDI if the region’s institutional quality continues to improve. Universal institutional constraints result in the low cost of China’s FDI inflows and further lead to the size of foreign investment project is too small, foreign-funded enterprises’too strong export-oriented and concentrated in labor-intensive and resource-intensive industries. Low costs of FDI inflows into China and FDI’s atypical features, greatly reduced the vertical correlation of FDI enterprises and local enterprises, which lead to revenue leakage effect. Thus leading to the reduction of spillover effect of FDI and growth effect or even the total effect is negative. At the same time, Universal institutional constraints reduce the efficiency of financial market while preventing the accumulation of local human capital, thus greatly reducing the region’s absorption capacity of high-tech FDI and weakening the positive spillover effect of FDI. Institutional constraints will influence the allocation efficiency of capital and other factors. Thus result in the decrease of overall allocation efficiency regional if there is a intense competition for FDI between the regions. Which will result in the loss of efficiency, and offset FDI’s own growth effects to some extent.(6) This paper empirically test the theoretical mechanism of institutional environment and industry growth effects of FDI using Chinese provinces1990-2010panel datas and the estimation method of system GMM. Empirical result shows that the growth effects of FDI are no longer positive after controlling the degree of market, or even become significant negative effect. It indicates that the host country (region) institutional environment has played a crucial role in the process of growth effect of FDI. It may also be the fundamental reason that a lot of FDI and economic growth literatures come to different conclusions without considering the host country institutional environment. FDI’s industry growth effect in the host country (region) achieved through improved local institutional environment. The industrial growth effect of FDI will significantly enhanced along with the improvement of the regional degree of market.Finally, we put forward policy recommendations from the institutional environment improvement and attract foreign investment, according to the theoretical analysis and empirical results. We must improve and optimize the regional institutional environment to promote economic growth effect of FDI, in order to form the interaction situation of domestic reform and opening-up. |
PDF Full Text Request