Foreign Direct Investment In Crowding Out Effect On Domestic Investment In Shandong Province

Nowdays, the domestic and foreign scholars’research concentration of economic effect of foreign direct investment (FDI) in our country has changed from its economic growth effect, international payments balance effect and the technical extension effect to the capital formation effect in our country, that is concentrate on the research whether FDI promotion or restrain our domestic investment.However, because the ranges and methods on research of the capital formation effect, the result of research has been disputed. Shandong province is one of the most economically developed areas in China, is one of successful models in China’s reform and opening up process, since all the year round,FDl inflow has been large. However, foreign direct investment, as one of the main ways of international capital flow, play an important role in the industrial structure and the regional economic differences development of our province for long run term. Foreign direct investment in Shandong Province addresses the shortage of local funds and expands the employment, at the same time makes a significant crowding-out effect to the local industrial structure and economic development. It’s reflected outstandingly in squeezing the local business market and investment, and absorbing considerable various factors of production to foreign enterprises etc.This paper takes Shandong Province as the research object, start from the concepts and theorys of the foreign direct investment and the crowding-in & crowding-out effect, and then we will carry out a comprehensive description of status quo of Shandong Province, such as development process, the overall scale, industrial structure, regional distribution, source of investment, way of investment and other aspects.On the base of mature theoretical models and existing findings, this paper uses time series data of the foreign direct investment(FDI) and the domestic investment inflow amount in Shandong province from 1984 to 2009, with a total investment of equation model, establishes the regression equation between domestic investment, foreign direct investment and GDP of a lag 2 period, analysis the economic influence over domestic investment exerted by foreign direct investment, then calculate extrusion effect coefficient. The econometric analysis result shows that, to the whole of Shandong province, FDI suppress the domestic investment, and further analysis the causes may leading to foreign direct investment crowding-out domestic investment in our province, and some policy recommendations are put forward to improve the utilization quality of foreign capital.