Study On Foreign Direct Investment And Economic Growth In West & East China

Based on new-economic growth theory , we test the effect of foreign direct investment(FDI)on economic growth in East & West China, which are the relative wealthy region and the backward region in China, utilizing panel data formed by 12 provinces and municipalities of East China and 9 provinces and municipalities of West China from 1990 to 2001. We try to find : (1)whether the effect of FDI on East China is stronger than West China, if that is so ,what factors cause the results? (2) whether the spillovers of FDI in a province spreads to other provinces around; (3)whether FDI crowds out or crowds in gross domestic investment(GDI); (4) whether there is convergence in economic growth in China , especially between East and West China.Our results suggest that both GDI and FDI are important vehicle for economic growth in China ; FDI has positive effect on growth whether in West or East China. But the effect of GTI on economic growth in East China is stronger than West China. Different from previous study on FDI, we find the effect of FDI on economic growth in West China is something stronger than in East China if only controlling GTI and human capital . However, if we add other explained variables such as development level and openness , the result is that the effect of FDI on growth in East China is stronger than in West China. We also find FDI crowds in domestic investment in East and West China. And the spillovers of FDI in a province spread to other provinces around, we also find some domestic sectors benefit more than others from the external effects of foreign direct investment . Previous studies on the spillovers of FDI focus on the spilover to the province or region itself ,without noticing the cross-provinces spillovers of FDI. In this study ,we do find the cross-provinces spillovers of FDI in China. And we also the cros-province spillovers of FDI in East China is stronger than in West China.The results indicate gross domestic investment is the mian determiant to economic growth in West and East China. Contrary to previous research , we find the effect of FDI on growth in West China is stronger than in East China only controlling GP, FP and H. however, after controlling other factors such as EDL and OPEN in the regressions , the effect of FDI on growth in East China is stronger than in West China .So we conclude it is because the backward development , human capital and openness in West China which result in less efficient of foreign direct investment on growth than in east China. We conclude that foreign direct investment has positive spillovers in East and WestChina, contributing to economic growth. And a province benefits from not only FDI in the province , but also the diffusion of foreign direct investment in neighbor provinces , which suggests foreign direct investment may leads to cross-provinces spillovers. We also find domestic sectors are the main beneficiaries from the positive spillovers of foreign direct investment . and the result also suggests that FDI crowds in gross domestic investment in both regions . But we do not find that there stands a minimum threshold stock of human capital in China, however the human capital is positively relative to economic growth .We also find there is convergence in economic growth among provinces both in West within and East within, but there is no convergence in economic growth between the West China and East China . The results are robust to a number of alternative model specifications.