An Empirical Research On Foreign Direct Investment Technology Spillovers And Human Absorptive Capacity In China

Economic globalization is the main theme in today's world, in which foreign direct investment plays an important role in every country and becomes increasingly popular in academic world. Along with China's reform and opening up policy, foreign direct investment rages in and restructures China's domestic market, which, inevitably, makes a big challenge to domestic industries. The most significant issue for China's domestic industry is how to push forward and upgrade technology progress through inflows of foreign capital. How dose foreign direct investment effect domestic industry and how can companies in home make a best use of technology spillovers from foreign investment are the main topics in this thesis.Using time series and cross section data, this thesis analyzes relationship among variables by quantitative economic methods including Cointegration analysis, Granger Causality test and Panel Data model. Based on domestic data from 1985 to 2005, this paper tests the relationship among foreign direct investment, human capital and economic growth by using the method of Cointegration analysis and Granger Causality test. It finds out that it is tertiary human capital, not utilized foreign direct investment, have a long-term causality relationship with China's economic growth. By using regional data of thirty provinces from 1999 to 2004, (excluding Tibet autonomous region) this paper establishes Panel Data regression models for eastern, middle, and western region in China, respectively, and finds out spillover effect from foreign direct investment to domestic industries and contribution of foreign direct investment to domestic investment gap , the result of which are informative: 1. In eastern part of China, spillover effect from the combination of FDI and tertiary human capital is much higher than those in the middle and western provinces where FDI cooperates better with intermediate human capital. 2. The thresholds of human capital in the 3 regions to make foreign investment a positive momentum to local economy are calculated. 3. Based on deposit and credit data from 4 state-owned banks, when it comes to foreign investment's merge and acquisition, financial repression in state-owned banks dose have a significantly negative effect on domestic firms' performance.This thesis consists of 4 parts. Chapter 1 is an orientation and shows what previous scholars have and have not done. Chapter 2 introduces foreign direct investment theories, statistics and instructors used in this thesis. Chapter 3 gives empirical research, in which the author tests relations among foreign direct investment, human capital and economic growth. Furthermore, by using two different human capital variables and the local financial repression instructors, the author compares foreign direct investment's technology spillovers effect in different variable matches. Chapter 4 makes some concluding remarks and policy suggestions.