The Empirical Research On The Impact Of Urbanization On The Foreign Direct Investment

Urbanization is the only way to achieve modernization for a country or region,and whether the rate of urbanization is reasonable depends on the coordination degreebetween urbanization and economic and social development, so urbanization will bean important economic growth point to drive the next round of developmentof China’s. While foreign direct investment affects formation of the city mainlythrough capital effects, spillover effects, system changes effects and so on. Theintrinsic relationship between urbanization and FDI attracted scholars’ extensiveresearch. Firstly, this paper explain how FDI advances urbanization, how urbanizationaffects FDI, and the internal theory base like the agglomeration economies betweenFDI and urbanization. Next, while differing from the traditional measure which issingle-indicator method, it selects comprehensive strength of urban of the267citiesfrom China and foreign direct investment as a research object, use the way of analytichierarchy process to calculate the overall strength of the cities’ value which reflectsthe degree of urbanization level better. Further, it chooses panel data to conduct thetwo-stage least squares of simultaneous equations, which proves that the mutualpromoting effects between FDI and urbanization, and demonstrate that the importanceof urbanization scale to attract FDI, such as over-urbanization may hinder theabsorption of FDI. Finally, this paper concludes the policy implications about FDI andregional urban promotion.The main conclusions of this paper will be listed follow. First, there is a closecorrelation between urbanization and foreign direct investment. The regressionanalysis of panel data shows that the higher the level of FDI, the higher the level ofurbanization. Conversely, raising the level of urbanization will also attract FDI. Thereexists a significant positive correlation between them. Also, the size of urbanizationscale has a profound impact to the attraction of FDI, and excessive overall strength ofurbanization will impede the absorption of FDI. Second, the optimization of industrialstructure promote agricultural non-agricultural, thus further the development ofurbanization. At the same time, increased government spending has a positive effectof urbanization. Third, market openness has a negative effect on FDI, mainly due tothe increase of the state-owned enterprises in the GDP output. They indicates thatChina’s industrial enterprises dominated by state-owned, which would weaken the competitiveness of foreign investment.