FDI And The Economic Growth In China: Theory, Demonstration And Measures

China started to attract FDI from the end of 1970s. No matter how the international economic environment changes and what is the total amount of the global FDI, the FDI attracted by China grew steadily. From 1993 to 2001, the amount of the foreign capital brought in China ranked second in the world continuously for 9 years, only behind U.S. And in 2002, china surpassed U.S. for the first time and became the world's biggest introduction-capital country.In the initial stages of the reform and opening-up policy, the main reason for China to use FDI was to obtain more construction funds and more foreign exchange brought by accelerating the export, and it has gained distinct effect at that time. But today, this is already hard to explain the continuous increase of the FDI attracted by China.To study the functions of FDI and its impacts on China's economic growth for the past twenty years, based on theoretical analysis and using quantitative and qualitative methods, this paper is going to investigate the usage of FDI in China and demonstrate the relationship between FDI and China's economic growth.Different theories tried to explain how FDI helps to accelerate economic growth:"Two-Gap Model"is no longer suitable for current economic conditions in China; the Neo-Classical growth theory indicated that FDI, as a sort of capital and external shock, can only accelerate economic growth in the short run; while the Endogenous growth theory emphasizes the effects of technological diffusion of FDI on long-run economic growth.In this paper, large numbers of data and graphs are used to analyze qualitatively the characteristics of FDI into China including the amount, categories, original countries as well as the structure of regions and industries. The contributions of FDI on Chinese economy are also explored.The quantitative analysis consists of 2 steps. First, by constructing an exogenous economy growth model, this paper conducts an empirical analysis on the relationship between FDI and the general economy growth in china. The results demonstrate that every 1% of the increase of FDI can bring about 0.632% of the growth in Chinese GDP, which further confirms the expectation that FDI has positive effects on the general economic growth.Second, based on the above findings, by constructing an endogenous economic growth model, the paper conducts an empirical analysis on the relationship between the technological spillovers of FDI and Chinese economic growth. Since the effects of the economic growth and technological development levels, human resources reserve, research input, marketization degree, and infrastructure conditions in different industries on technological spillovers are different, this paper only focuses on the research on several main industries to discuss the impacts of FDI to Chinese technological spillovers. The results show that in mining, construction, wholesale, and retail industries, the technological spillovers of FDI are positively and significantly related to the economic growth; in agriculture, forestry, live stocking, side line occupations, fishery, and manufacturing industries, the technological spillovers of FDI are not significant, while the effects of FDI are negatively related to economic growth in the production and supply industries of electricity, gas, water.The implications of this paper demonstrate that technological spillover is a powerful mechanism which has great potential to be further developed to enhance future economic growth. In order to maximize the contributions of FDI, it is of great necessity to make the best use of technological spillovers of FDI. Therefore, it is important to enhance the quality of FDI to establish better spillovers sources, and the improvement of the capabilities of absorbing FDI technological spillovers is also required.