The Interactive Mechanism Between FDI And Human Capital With The Regional Economic Disparities

FDI is one of the main channels for international spillovers. Developing countries can absorb advanced technologies from advanced countries to promote economic growth by using spillover effect from FDI. The existing researches show that human capital is one of the main factors that affect spillover effect from FDI. It not only determines the scale of FDI, but also the absorptive capacity of host countries. On the other hand, FDI affects accumulation of human capital through many ways, too. So there may exist an interactive mechanism between FDI and human capital. To get to the back of it has great significance to the utilization of the technological spillovers from FDI for the technological development. There is a big economic gap between the east and Middle West region in China at present, which is mainly caused by the difference in FDI. So it is important to encourage FDI to flow to the Middle and West region to improve this situation. And human capital is one of the main factors that affect the scale of FDI, so to explore the interactive mechanism between Chinese FDI and human capital is the precondition for government to take relevant policies and measures.This paper analyzes the various relationships between FDI and human capital in theory, which include the relationship between human capital and spillover effect from FDI and the relationship between FDI and accumulation of human capital. Based on these analyses, this paper investigates empirically the interactive mechanism between FDI and human capital by using a panel data set for 28 provinces of China over the 1990-2004 periods. First, this paper tests the impact of level of human capital on the scale of FDI, and then tests the impact of that on spillover effect from FDI. The results show that the level of human capital in every province is one of the main factors which affect spillover effect from FDI. On the one hand it affects the scale of FDI, and on the other hand it affects the absorptive capacity. This paper continuses to investigate the impact of scale of FDI on the level of human capital in every province, and the results show that FDI has a significant impact on human capital accumulation. At last this paper establishes a dynamic autoregressive simultaneous equations model to prove empirically the interactive mechanism, and the result confirms it. This paper thinks that the interactive machanism is one of the main reasons for regional economic differences in china, so proper regional difference policies and measures are suggested for the government to adopt to encourage FDI and human capital to flow to the Middle and West region and realize the coordinated development of regional economics.