Analysis Of Effect Of FDI On Macro-economic Efficiency Of Investment In China

Statistics show that since 1991 FDI occupy a long-term pivotal position in China's economic development. At the same time, China's macro-economic efficiency of investment significantly reduced in the middle of 1990s, and after entering the new century, investment required for each additional unit of GDP by the amount seems higher than before. This shows behind the rapid economic growth and the influx of foreign capital in large numbers, there is the issue of efficient use of capital in China's economic. So whecher FDI has an impact on the macro-economic efficiency of investment in China? What impact? Why?To find the answer to the questions above, this article firstly starts from macro-economic efficiency of investment theory, elaborates the meaning and implications in the model explicitly related, and proves that incremental capital output ratio(ICOR) is the most important target to measure macro-economic efficiency of investment, achieving the unity of the macro-economic efficiency of investment theory meaning and its empirical indicators. In addition, we analysis mechanisms of the impact of FDI on macro-economic efficiency of investment in China based on the classic theory of FDI and its impact on host economies, including direct impact and indirect impact which also includes three channels: effect of domestic capital squeezed into economic, competition effect and spillover effects.In empirical part of this paper, we have a comprehensive and in-depth analysis of effect of FDI on macro-economic efficiency of investment in China through Granger causality test. This study concluded that: On the national level, FDI entry has a significant negative impact on macro-economic efficiency of investment in China; its main reason includes FDI pushing up production costs of domestic firms, not obvious of FDI spillover effects, as well as the weak absorbing capacity on advanced technology of the new management model of domestic-funded enterprises. On the regional perspective, effects of FDI on macro-economic efficiency of investment is difference, specificly performing in not obvious effect in the eastern and central regions, and the significant deterioration of FDI on macro-economic efficiency of investment in the western region. Accordingly, reasons for the different effects of FDI on macro-economic efficiency of investment mainly including: the orientation i foreign ntroduction policy, differences in human capital, different innovation capability of compony and speed of business and market process.For the above analysis, the article put forward to some proposals to improve the foreign investment on impact of China's macro-economic efficiency of investment, which includs improving the models of the foreign investment introduction, improving the mechanism of market competition and improving innovation capability of domestic enterprises and so on. All the proposals has practical significance.