Study On The Contribution Of Foreign Direct Investment To The China's Economic Growth And It's Function Mechanism

Because of the debt crisis in the 1980s, the credit of commercial banks to the developing countries began to decline. Many developing countries hope to invite outside investment by gradually abolishing the limit to the foreign direct investment (FDI) and by giving preferential policies or a large number of subsidies to foreign investors. All of these preferential policies are based on the following two points of view: 1) FDI diminishes the lack of capital for construction, and 2) FDI leads to the externality, i.e. the effect of technical spillover, which is beneficial to the host countries. But whether these advantages exist, in what conditions can the effect of technical spillover get the maximum result, or whether these preferential policies are proper, these three questions depend on whether FDI brings us with more advanced technology and/or decreases unemployment, otherwise we will pay too much cost to these preferential policies.So how to evaluate the function of FDI is critical in the designing of policies for inviting outside investment. Because the preferential policies have cost, the economic development of one country or one region should not be realized by granting foreign investors beyond-nationality treatment. Under such circumstance this paper, based on the principle of economic theory and a large number of economic data, makes full analyses to the effect of FDI to the host country and its mechanism of functioning. Here two different methods are used to compute the contribution of FDI to the economic growth of host country—one is by the principle of multiplier according to different markets and different origins of raw materials, the other is to measure the correlation of FDI and GDP by setting up econometric model of production function with normal form and using pooled macroeconomic data (i.e. contains both the time-sequence data and the panel data) of a majority of provinces in China since 1984. On discussing which factor affects the spillover of FDI by the econometric model of production functions taking Cobb-Douglass form and normal form, this paper regard the proportion of employment in the state-owned enterprises and the stock of undergraduate in China as the variable of market maturity and human capital respectively, so that it is convenient to judge its relationship to the spillover effect of FDI by the analytic methods of econometrics. And then we can draw conclusions that although the reform of marketization especially the reform of ownership plays a significantly positive role in the economic growth, FDI plays a more important role in improving the efficiency of production factors. And the increase in the number of undergraduate has little effect in the spillover effect of FDI.