Empirical Analysis On The Spillover Effects Of The FDI On The Capital Of Shandong Province's Industrial Sector

In recent years, the eastern coastal province of Shandong, with its favorable geographical conditions and economic environment, has been one of the top destinations' for Foreign Direct Investment(FDI), most of which flows into the industrial sector. FDI has been an important factor in promoting economic growth in our province. However, with China's rapid economic development, reform and opening up and domestic situation have changed radically. Under these new situations, especially when the "two-gap" model has failed on the premise that how to look at the role of FDI has become the focus of the theoretical circle. Generally speaking, the main purpose is to enhance the production technology and management level in these current FDI-funded enterprises. Obviously, the objective evaluation of FDI capital's spillover effects for the industrial sector in Shandong technology and by what strategy to attract investment for Shandong Province in the coming years and decisions about Shandong's overall development model have important theoretical and practical justice.The purpose of this study is to investigate the spillover effects of the FDI on the capital of Shandong province's industrial sector and bring about the relevant policy recommendations. Firstly, the relevant literature on the domestic is sorted out, the concept of foreign direct investment, significance, research methods, FDI technology spillovers also the conduction mechanism and the factors are described and analyzed herein. The current situation of FDI in Shandong Province and its development trends, as well as its pattern of sourcing and flowing especially the characteristics of uneven geographical distribution are carefully analyzed.Based on theories and the practical use of direct foreign investment in Shandong Province, we, in this paper, use panel data model to analyze 1998-2004 foreign investment to the industrial sector spillover effects on the province. This preliminary empirical analysis comes to the conclusion that the spillover effects are not significant. Also found by this analysis is that Shandong Province's labor factor contributes near zero growth in the industrial sector. Further study found that the lag effects of significantly FDI technology spillover.With the passage of time, the spillover effect will be more visible. Research indicates that the different regions of Shandong Province so that the spillover effects have got across its line of "development threshold". Foreign investors in the middle and the western regions of Shandong province have exerted larger spillover effects, although the spillover effect for the east coast is not so obvious. The results reflect the eastern Shandong Province and the general situation of the province share some proximity, while the middle and western regions show more positive results. This is because the local-funded enterprises and foreign-funded enterprises in eastern regions of Shandong province have a relatively narrow gap between the technical and management levels, which entails smaller spillover effect of FDI.Compared with the eastern regions of Shandong province, central and western regions have been displaying a much obvious foreign investment spillover effect. At present, FDI capital for the local industrial sector is playing a role of promoting its overall capacity. Subsequently, a review on the model itself is presented in this article which also reflects the main issue. In general, the test results are valid and credible. Finally, by using these empirical results, this article raises the relevant policy recommendations based on the actual conditions in various regions respectively.