An Empirical Analysis On The Effect Of Foreign Direct Investment On The BRICs' Economic Growth

The BRICs ,which consist of Brazil, Russia, and India, are currently the four largest emerging market economies , the GDP of the four countries in 2006 reached 5.57 trillion US dollars, and its rapid pace of economic development, and strong developmental potential , a broad market, attracted a large amount of foreign direct investment ,in 2006 the absorption of the total FDI of the BRICs accounted for one third of the total amount of FDI in developing countries. But the BRICs are not only similar but also different in the process of attracting foreign direct investment, FDI plays different roles in their individual national economic development. Therefore, the study on the relationship of the foreign direct investment and economic growth in the BRICs is necessary. The other countries'successful experience can be important models for China's further investment. The article analyzes the influence of the foreign direct investment on the economic growth of the BRICs from the point of empirical view, and then gives the proposals on investment of our countries, especially on how to further guide the FDI inChina and put forward countermeasures. The article includes four parts: Chapter One which is the introduction describes the basic theories of the foreign direct investment and economic growth, and then,introduces the empirical research findings by economists and scholars home and abroad. The study results shows that the majority of foreign direct investment promoted economic growth, but some empirical test shows that foreign direct investment also plays a negative role.Chapter Two is a brief review on the foreign direct investment of the BRICs. Firstly, it points out that the economic development of the BRICs has become more and more important in the word economy, along with the economic development the four countries attract a large amount of foreign direct investment, and occupies an important position in the world. In 2006 they accounted for one third of the total FDI in developing countries. Secondly, the study argues that the development of the BRICs could be clearly divided into three stages: the steady development, stagnant, the rapid growth. There are different situations of FDI in distinct countries in different stages. Thirdly, among the home countries of foreign direct investment in the BRICs, the United States, which is within the top three countries, occupies an important position. The primary sources of FDI which flows to China, India and Russia are from free ports, the sources of FDI which flows to Brazil, China and Russia have obvious geographic characteristics. In addition, the tertiary industry of Brazil and India absorbs a lot of foreign investment, while FDI of China and Russia was concentrated in the secondary industry. Finally, the BRICs not only attract a large amount of foreign direct investment, but also invest abroad. Outward investment of four countries precedes most of other developing countries, the sum of the BRICs'outward investment accounts for a large share of developing countries, they invest both in the developing countries and developed countries.Chapter Three is mainly about the test which measures the relationship of the BRICs'foreign direct investment and economic growth empirically. First, the article analyzes the three kinds of influence of FDI on economic growth. The four countries'FDI plays an important role in adding up fixed assets. Brazil and China are most obvious. India and Russia in recent years with the increase in FDI inflows the contribution to its fixed assets is also growing. The inflows of foreign capital contribute to expand the volume of foreign trade, and improve the trade structure, China is the most significant representative, foreign-invested enterprises in 2005 produced nearly 60% of total value of import and export of China's total value of import and export, also occupied most of the import and export of high-tech products. However, the performance of Brazil, Russia and India is not so conspicuous. The BRICs also attract a large amount of investment of multinationals, these enterprises have advanced technology and abundant capital, which is vital to improve the technological level of the host country. India invites many of the top IT enterprises of the world to invest in the nation to promote the development of the information industry and increase the amount of IT trade. More and more multinationals invest in China, they not only engages greenfield investment ,but also establishes research and development centers, these R & D centers of China have some spillover effect which rises the level of science and technology of China.The second part uses the time-series data of 12 years in the sample space to test the BRICs'10 variables. Except China's GDP and FDI, Russia's GDP and India's GDP, the other six variables are inteategrated of 1. Although China's two second-order differential variable are non-stationary, they are still pass cointegration test. Therefore the article further analyzes the three groups of variables in the cointegration test, dicovering the existence of a cointegration relationship between the BRICs'LGDP and the LFDI, the coefficient of 1.09; also existence of a cointegration relationship between LGDPB and LFDIB , coefficient is 0.994, while the cointegration relationship of China's LGDPC and LFDIC exists, there is a still long-term stable relationship and coefficient is 0.47. In order to study the situation of FDI and GDP of Russia and India, the article analyzes the correlation coefficients of two groups of variable, results show that Russia and India's foreign direct investment play a limited role on economic growth. According to the previous analysis and empirical test results, the paper points out that Russia's political factors are impeding foreign direct investment to development, but after the end of the election and the completion of the legal system of the WTO, the introduction of incentives for investment would accelerate the growth of FDI. India's absorption is obstructed because of the poor infrastructure and the insufficient proportion of foreign direct investment in the manufacturing sector; in Brazil, foreign capital controls many economic sectors, Brazil needs to further nurture local enterprises and the establishment of sound financial system.Chapter Four argues that China should draw lessons from the other countries of the BRICs to further improve the investment performance. This includes four points: Firstly, the use of foreign direct investment to improve the status of unbalanced development among different regions. China's foreign direct investment is highly concentrated in the eastern region while the central and western regions, which have a very low level of foreign capital utilization, have their own inherent poor conditions, But concerning the country's open-door policy, China should learn from the experience of Brazil which adopted preferential treatment policies for investment in backward areas, promoting balanced regional economic development. Secondly, the use of foreign direct investment to promote the adjustment and upgrading of industrial structure is very import, China's foreign direct investment is more concentrated in labor-intensive manufacturing industries, how to use the India's experience to direct FDI to service industry and high-tech industry is the direction of China's further development. Thirdly, China's strong influx of FDI is promoting the economic growth, but it also negatively affects national economic security, China should learn the experience from India and Brazil, reducing the negative influences of FDI in the services, foreign trade, transnational mergers and acquisitions, take measures to improve the law, and establish the risk evaluation mechanism. Finally, with the globalization of economy, China should invites FDI and invest abroad, employing two resources, exploring two markets.