Comparative Analysis On Economic Growth Effect By FDI In China And India

With the development of economic globalization, countries in the world speed up the pace of the utilization of foreign capital, of which the foreign direct investment (FDI) seems to be the trend for the international capital flows. As the two large developing countries, China and India, their recent irapid economic growth, to a certain extent, depend on FDI, but after careful analysis we find that the FDI effect on the economic growth for the two countries are not the same. In recent years, China and India both have maintained relatively stable economic growth, especially Indian rapid economic growth which has attracted the world's attention and foreign comments: In China and India, there is a war between "dragon and elephant" They mainly focus on whether India can overtake China and which country's economic growth is more sustainable. What are the differences between the role which FDI played in the economic growth in China and India individually? What are the influences of these differences? China, as one of the developing countries which has been absorbing the most FDI in the world since 2000, the FDI growth rate tends to stabilize. Meanwhile, India also has large increase in FDI inflow, so what will be the effect for China FDI inflow? The objective analysis of these issues will play an important role in our FDI policy's making and adjusting.This paper reviews the research results at home and abroad on how FDI improved the economic growth. Based on the samples of China and India, adopting the empirical analysis on the relevance of FDI and GDP in the two countries, we find that in the two countries, FDI stimulated economic growth respectively, and Chinese FDI utilization is more efficient and reasonable. Then we analyze the reasons for this phenomenon, and concluded that both of the countries' FDI have positive effect on the economic growth and we can carry out some effective suggestions to absorb FDI in order to enhance our utilization level of FDI.The paper consists of five parts. Introduction is the first part focusing on the research background, the significance, research methods, structural arrangements and innovation. The second part is the related literature review, systematically reviewing the domestic and foreign research on the FDI contribution to economic development of host countries, comparative study of the use of FDI in India and China individually. Combining the related literature and the actual situation in various countries around the world, the author found that FDI can lead to high economic growth, and many scholars believe that China can learn a lot from the use of FDI in India. Part three is the empirical analysis based on the economic growth effect of FDI in both countries. Firstly the author expounds the GDP and FDI basic development since the reform in the two countries, then take FDI as the independent variable, take GDP as the dependent variable, use Two-stage Least Square Estimation method and establish regression model, in order to quantitatively analyze the relationship between total GDP and total FDI. Finally the author concluded that both China and India have strong positive correlation between GDP and FDI, but Chinese FDI utilization efficiency is higher man that of India. Part four is reason analysis for the empirical results of part three. The author firstly explain how FDI improved economy in China from the angle of Chinese own advantages; then analyze how FDI improved economy in India based on the Indian own advantages, such as the opening up policy in recent years; finally point out that China has more advantages in the use and attraction of FDI than India. Part five are the conclusions and suggestions. With the background of globalization, both in China and India FDI has played an important role in modernization and social development China should learn from India partly on the basis of maintaining its own advantages, such as the absorption source of FDI, the Indian perfect financial system and legal system, and so on, so as to promote better use of FDI in China.