The Major Developed Countries' Business-Cycle Fluctuations On The Impact Of Foreign Direct Investment Of China

With the development of economy, any country is hard separated from world economy. Economic cycle has been an important part of economics, and with economic globalization and development, foreign direct investment theory has become a more and more popular subject. In recent years, China's rapid economic development has attracted worldwide attention, there have been many studies on economic cycles and FDI in some literatures. This paper attempts a new perspective to study the relationship between the economic cycles and FDI. China as the host, starting from some of the largest developed countries which have the most impact in our country's FDI, analyzes these countries'economic cycle and try to find how these cycles change their investments in China, besides, we want to know what affect FDI. For the more comprehensive description of the economic cycle and the relationship between FDI in China, we finally joined our country's economic cycle, simple instructions are compared.This paper is divided into four parts.Introduction introduces the research background and significance.The first part is the economic cycle and the studies abroad FDI literatures review and a brief introduction to economic cycles and FDI definition, classification and relationships between them.The second part of this paper introduces a few selected countries in the development of direct investment in China and their respective features. The next part of this chapter generally compares the differences before and after the reform and opening up, and gives a simple explanation on our country's economic cycle, the characteristics of FDI's development. The following four sections separate introduce the European Union, the United States, Japan and South Korea's direct investment in China and their characteristics.The third part describes econometric model used in this article and research methods. We here adopt Ramey and Ramey's(1995) procedures to estimate two measures of economy cycles. The first one is the standard deviation of per capita real GDP growth. Another one relates to residuals from the regression that explains long-run per capita real GDP growth. In the econometric model we use the linear regression and panel regression. In addition, we have done two tests, and thus determine the random effects model.The fourth part, the empirical analysis about economic cycle of the major developed countries which have the most impact in our country's FDI.First, we make a simple instructions of the variables, the selection of data and study the causes and circumstances.In variable selection, we followed the previous methods, use the real per capita GDP growth, GDP in the proportion of total investment, the level of human capital (employment), the population growth rate, inflation rate, openness degree (GDP in total imports and exports), real exchange rates and interest rates (bond interest rates) and other data sets. According the Statistical Yearbook we choose four countries in turn which have the most FDI in China:EU, U.S., Japan and South Korea. Selected countries in the EU, we actually on the bases of the total number to choose countries which we want to discuss. Germany, the Netherlands, Britain, France, Italy, these five countries in the EU trade accounted for more than 72%. As far of 2007, these five countries total actual investment in China is upto 52.089 billion U.S.dollars, accounting for 88.01%.Therefore, we use the United Kingdom, Germany, France, the Netherlands and Italy, these five countries as representatives of the EU's direct investment in this paper.The following section introduces a simple theoretical framework to explain cyclical FDI decisions of entrepreneurs. This explanation is from the microscopic point to view the impact of economic cycles on FDI.In this part, we carried out our empirical analysis about economic cycle of the major developed countries which have the most impact in our country's FDI. First of all, make a return on this simple cycle in these eight countries respectively. From the regression results we can clearly see that, these countries on business cycle fluctuations all have their own negative impact on FDI. Performance in the regression equation is a negative correlation between the FDI and the GDP. Therefore, a country's higher per capita real GDP growth corresponds to a lower average level of FDI outflows. A larger fluctuations in the economy lead to a lower FDI outflows. Then, we return to FDI in these countries replaced by Chinese FDI, from the changed dates'regression results we still see such a negative relation. Although the absolute value from the point of view, the latter coefficient is smaller than the former one, but the results still show that these fluctuations in these developed countries'economic cycles lead to a reduction in FDI in China. Finally, make panel regression, and the result is still a good proof of our conclusion, that is, correlation between the developed countries'economic cycle and China's FDI is a negative relationship.We then make a further and deeper economic cycle research. Devided the economic cycle as economic growth and economic recession. At this point, with the help of a business cycle fluctuations on behalf of dummy variables to achieve the whole process. When the value of dum is 1,the economy is in boom, when the value of dum is 0, the economy is in recession. At this time our results show that when the economy is in recession, these countries fall in the number of China's FDI, but in the boom when the change is not significant.Then we come to the conclusion: major developed countries'economy cycle has a negatively correlated relationship with FDI in China. And this negative correlation between the performance during the recession is particularly evident but in the economic boom were not significant.To make our conclusions more perfect, we join the China's own business cycle finally. Although only do a simple comparison show, still clearly to see that when our country is in economic prosperity, more FDI will be abstracted.Finally come to this conclusion. With the combined group dates from 1985 to 2007, we find:economic cycles in developed countries'outside the flow of FDI has a negative impact, that is, the larger fluctuations in the economic cycle, the less FDI outflows.We can clearly see this negative relationship by the regression results in correlation coefficients. In addition, we also find that seveloped countries in the economic cycle on their investment volume of FDI in China have the same negative impact. The larger fluctuations in the economy lead to the decline in developed countries' FDI outflows, their investment in China's FDI decreased accordingly is also reasonable. This negative correlation is not in contradiction. However, this effect is not symmetrical. Fluctuations in the economic recession will increase a country's FDI outflows while negative impact of fluctuations in the boom will not. That is, when a country at a time when the economic recession, the FDI flows will reduce the number of outside, but when it is in boom time, the FDI flow will not change things much. Do a simple analysis on China's economic cycle we can know, when the national economy is in boom, the foreign direct investment inflows will increase.