Bric Fdi Spillovers Monetary And Financial Constraints

Since the 21st century, Foreign Direct Investment (FDI) became a very important part in the world economy, which is welcomed by most countries around the world. It is commonly believed that, FDI inflows can directly bridge the financial gap between local savings and investments. Meanwhile, FDI, as a package of capital and technology, may influence the local industrial structure and economy through a series of spillover effects. However, relative studies have found out that, FDI's spillover effect to the host country is restrained by a number of factors, one of which is the development of the domestic financial market.To investigate the relationship between local financial efficiency and FDI's spillover effect, this thesis makes a comprehensive introduction of relative literatures. Based on the International Finance Theory, the International Investment Theory and the Economic Growth Theory, this thesis discussed the way that the local financial system affects FDI's capital spillover effect and technology spillover effect. Furthermore, under the framework of endogenous growth theory, this thesis refers to two theoretical models to explain the problem more clearly.Based on the theoretical analysis, this thesis chose "BRIC" countries as a sample, and carries an empirical study to investigate the influence of domestic financial sectors on FDI's spillover effect. During the study, this thesis uses LLY, LOAN and SVALT to measure the development level of local financial markets. The empirical result shows that the "BRIC"'s financial markets have not significantly promoted FDI's spillover effect, which is on the contrary to the former study results of the developed countries like USA, UK and Japan.In order to explain the difference of the empirical results of "BRIC" and developed countries, this thesis contrasts the financial environment and the financial markets of USA, UK, Japan and "BRIC". According to the comparative study, there is a wide gap between the financial development levels of the two country groups. The low efficiency of the domestic financial system has restricted the "BRIC" countries' absorption and utilization of FDI.The study of this thesis showed that the financial markets played an important role in promoting the FDI's spillover effect on host countries. Therefore, in order to make a better use of FDI, every country should take measures to improve the efficiency of its financial system. In the last section, this thesis analyzes the current state of China's use of FDI as well as its financial sector, and offers several policy suggestions. This thesis pointed out that, China should promote the efficiency of its financial system through below methods:firstly, creating a more sophisticated capital market; secondly, increasing the financial support for private enterprises; thirdly, making efforts to pursue financial liberalization.