Research On The Effect Of Foreign Direct Investment On Market Concentration Of Chinese Auto Industry

The rapid development of auto industry benefit from joint venture and cooperation with transnational corporations (TNCs) in China. Along with the enlargement of scale of foreign direct investment (FDI), the powerful foreign investment company wins the notable position in auto market. Now many scholars pay attention to whether the entry of TNCs will lead to market monopoly. Through analyzing the effect of FDI on market concentration degree of Chinese auto industry, this paper attempts to realize the impact of FDI on market competition.First, based on interrelated theories about FDI and market concentration, This paper uses Couront model to analyse the inherent mechanism of the impact of FDI on market concentration. When marginal cost descends, joint venture will move reaction curve apart from the origin, which implies joint venture may increase the output and gain more market share, so market concentration is enhanced.Secondly, This paper introduces cointegration and Granger Causality test to make empirical research on the effect of FDI on market concentration of auto industry. through establishing long term cointegration equation and error correction model, this paper analyzes the relation between FDI and market concentration in long term and short term., Then adopts Granger Causality test to prove their Causality. Main conclusion as follows:(1)from the standpoint of their short-term relation. the coefficient of regression of lag 1 and 2 indicates that FDI makes positive effect on market concentration. at the same time, definite FDI enhances definite market concentration directly, i.e. current market concentration increases quickly which will hold down the increase of later market concentration.(2)from the standpoint of their long-term relation, FDI will promote market concentration. FDI that increases by 1 percent will give rise to increase by 0.11 percent. The outcome Granger Causality test shows that FDI is the cause enhancing market concentration. in fact, the effect of FDI on market concentration is limited and TNCs have respective different interest so that their relations are competition, but not collusion. Therefore we don't worry too much about TNCs monopolising Chinese auto market.At last, according to research conclusions, this paper argues that as long as the...