Crowding Out Effect Of FDI On China's Domestic Investment Squeeze Into

Foreign Direct Investment (FDI) has greatly imposed on china's economic development since the reform and opening-up. On the one hand, FDI covers the shortage of capital and technique and drive some industries up, on the other hand, it does have negative influence on China through trade balance, outer costs, domestic investment and technology improvement. So it is necessary to alleviate the disadvantage and enlarge the advantage of FDI, in order to ensure the healthy growth of China's economy.This paper focuses on the impact of FDI on domestic investment. We want to discover how and how strong do FDI influence domestic investment, how to make better use of foreign capital. To accomplish this, we first stated the mechanism of FDI influence domestic investment and growth, and we reviewed China's using of FDI in recent thirty years.This paper uses the "relative crowd-in and crowd-out model" established by Agosin and Mayer at 2000. We examined the panel data of 29 provinces from 1987-2009 and judge the impact through calculating the regression coefficient. The result told us, FDI has crowded in domestic investment since 1987, after further research, we can see crowded-out effect before 1998 and obvious crowded-in after that, which is due to the dramatic change of economic condition in and out of China. FDI also has crowd-in effect on eastern and central district and private economy, while crowded-out prevails in state-owned and little influence exists in western China.In the last chapter, this paper tabled some suggestions, including strengthen management of FDI, improve quality of foreign capital, shorten regional unbalance and develop a mature capital market. The core thought is to reduce crowd-out effect and increase crowd-in effect and make better use of FDI to develop our country.