FDI With Asymmetric Information In Developing Country--Adverse Selection For FDI During Initial Stage Of Developing Country's Openingness

On one hand many scholars have researched on selection of FDI location from different aspect, such as FDI special movement and its evolutional law; the formation of FDI location; factors that influence on the selection of FDI location. Dunning comprehensively summarized the influential factors on the selection of FDI location. Scholars verified his theory by positive research or developed it in their research; recently, more and more scholars study on the influential factors on the selection of FDI location such as knowledge, technology, economic growth, uncertainty, etc. Especially, it is focus on the study of FDI location selection from the aspect of information economics, but the study on this aspect is limited to the effect of information cost on FDI location selection . On the other hand, up till now, the adverse selection model under the condition of asymmetric information is only applied on the follow aspect: used-car market, insurance market, labor market, stock market, credit market. Concluding from the works of former two aspect, it is worthwhile for us to study the adverse selection of FDI under the condition of asymmetric information.The paper, based on the developing countries at initial stage of their opening, constructs a mathematics model of FDI adverse selection in settings of asymmetric information-the host country doesn't know the different level of attraction of preferential policy to FDI of big enterprise and minor enterprise. It theoretically analyses the FDI adverse selection on the developing countries at initial stage of their opening, that is, with input of FDI increasing, the rate of FDI of minor enterprise gets bigger, the rate of FDI of big enterprise gets smaller, thisleads to the gradual decline of the average scale of FDI projects, i.e., quality of FDI gradually exacerbate.This article provides a positive analysis on the date FDI flowing into China from 1979-1991. The result of the analysis indicates that the inflow of FDI in China are mainly from the minor enterprise of such area as Hongkong, Macow, Taiwan, Singapore, the average scale of the projects is small, in which over percent 90 of FDI congregate in the coastal zone there are preferential policies. The analysis also prove that the average scale of projects are gradually declining, with the input of more FDI.At the last part of this paper, it provides the advice that the inlet of FDI depends mainly on the improvement of condition .It also point out the direction of the development of the research on the preblem.