Mechanism And Empirical Research Of FDI And The Host Country's Industrial Development

Since the 1980s, the obvious impact of FDI on China's economy reinforced its status. Previous theoretical study shows that FDI has a significant effect on the economic growth of industry, technology and wage. Based on the previous research of FDI's impact on industrial upgrading through linkage, this paper analyzes the changes of factor market after the entry of FDI, and changes of host industry through FDI's backward and forward linkage. China is exemplified in an empirical research to illustrate the effect FDI has on the development of China's industry through forward and backward linkage, after its entry into consumer goods market.The result shows that it is a dynamic biphasic process that FDI affects the development of host industry through inter-industrial linkage and competition in factor market. In the preliminary stage, the entry of FDI will lead the host country to develop consume goods industry, which then promotes industrial structures; however, when the industry of the host country develops to a certain stage, the increasing competition between FDI and the host industry in factor market will hinder the development of host industry. At present, the effect of FDI in China is still in the first phase. Although FDI promotes the development of China's industry, such effect is weakening. Simultaneously, some problems are exposed. For example, "enclave" feature of FDI in China is still quite obvious, and the level of horizon spillovers absorbed by China's enterprises is also limited. If no timely actions are taken, FDI will probably inhibit the development of China's industry some time later. In the view of problems arisen and to arise, this paper comes up with some proper suggestions.