FDI And Economic Growth: Intermediary Role Of Financial Market

With the development of economic integration and liberalization of investment, more and more countries has adopted positive attitude to attract FDI. But the passive effect exposes at the same time. For example, FDI piles out employment, makes host countries depend more on foreign funds, and drives capital movement swifter. Under this situation, some scholars point out that the financial market is an important intermediary role in FDI and economic growth. That is, the effect of FDI on economy needs intermediary of financial market. Against this background, there is necessity to make an in-depth analysis of China's financial market, and find out whether there is positive effect in this process.The paper consists of six chapters. Chapter 1, introduction, mainly introduces the background, definitions, research logic and main contents, methodology, innovation and deficiencies. Chapter 2 is about literature reviews, which summarize and make comments on previous studies at home and abroad on intermediary role of financial market. There are little scholars who research the channels and threshold of intermediary role, and which are this paper's targets. Chapter 3 contains theoretical analysis of intermediary role, which based on contrast of economic model and derivation of mathematical theory, and the result shows that the intermediary role of financial market decides the contribution of FDI to economy. Chapter 4 and Chapter 5 deal with empirical analysis, which not only use stock and bank markets as objects of study, but also attempts to make a co-integration test, granger causality test, DEA and panel date methodologies on the effect of China's financial market in this process. The final results prove that the intermediary effect of financial market is important to spillover of FDI. Meanwhile, due to unbalanced development of finance between the east and Midwest in China, FDI does not promote economic growth in every region. Chapter 6 is to summarize the above conclusions and policy suggestions. On one hand, we use channels of intermediary role (Increase financing of enterprises, dredge industrial linkages, lower information costs, reduce potential losses, and promote competition) to explain the conclusions. On the other hand, we put forward the related policy suggestion (Establish financial foundation and build intermediary bridge).Based on the above studies, we find that FDI can't promote economic growth without financial market. On the contrary, FDI does play an important role in economic growth with a perfect financial market. Therefore, in order to accelerate the pace of economic development, China should establish a well-developed and efficient system of finance.