On Crowding-out Effect Of FDI And Strategy

Along with the growth of Foreign Direct Investment in China, the impact of FDI on out national economy has been on the rise. This paper focuses on the crowding-out effect of FDI on domestic investment.This paper addresses the crowding-out effect of FDI on domestic investment in China. The sector difference in policy, strength and status in national economy makes it wise to analyze the effect of FDI in the view of sectors respectively. This paper tries to make use of the related theory and model, collects investment-related data of different sectors to analyze the effect of FDI on domestic investment.The track of thought of the paper is as follows: The theoretical analysis of general introduction of FDI on both nation and sector level goes first; the empirical analysis follows to focus on manufacturing sector and retailing sector; on the basis of theoretical and empirical study, an explanation of the result and conclusion are given.Chapter I revisits and lays out the meaning and goal of the topic, the means of study and main characters. It presents the related theory and idea of the issue chronologically and gives the definition of related keywords.Chapter II reviews the history of FDI in China and states the general impact of FDI on China's economy. Upon the status quo of the national economy and investment statistics, the chapter analyzes the question of whether FDI would crowd out domestic investment by using empirical model. The result of the study is that during the period of 1983 and 2006, the whole crowding-out effect of FDI in domestic investment exists under the obviousness of 10%. An explanation is given for this empirical result.Chapter III selects the manufacturing sector in China as the sample of analysis. Based on the statistics of the sector since late 90s in 20^th century, the empirical study shows that the crowding-out or crowding-in effect of FDI on domestic investment is close to nil. However, the evidence of loss of market share and brands might be supportive in stating the existence of CO in some areas and fields. The unobvious result might be caused by the balance of conflict effect in different sub-sectors.Chapter IV gives an empirical study on the retailing sector due to its high level of competition and deep involvement of FDI. It starts with the investment history and status quo and follows up by analyzing the crowding-out effect of FDI on domestic investment in the retailing sector. Statistics show that the effect is somewhere in the middle. The result is followed by an explanation.The main problems and corresponding strategies are given in Chapter V that actions could be taken to make better use of FDI. It states the specific strategies in three different levels: to encourage domestic enterprises to make technical innovations and strive to be independent from FDI in technical sense; to make use of economic method to prevent sector monopoly and to lead FDI into different sectors; to adjust FDI policy in different sector and to create a fair environment for both FDI and domestic investment while being open for more FDI.To be brief, the conclusion can be drawn on base of the empirical results that there is crowding-out effect of FDI on domestic investment on the whole and the effect on some sectors is moderate. To prevent the crowding-out effect from further growing, strategies should be taken to lead FDI to improve the sector structure so as to ensure the sound development of national economy.