OFDI For Market Seeking And Their Effect On Domestic Capital Formation In China

With China’s rapid economic development and comprehensive national strengthhas been enhanced, especially after carrying out of the “going out” slogan, the growthof OFDI is very rapid. The rapid growth of OFDI arouses some concern. Some peoplequestion that the increase in OFDI will reduce the domestic capital formation. Thisthesis tries to discuss the relationship between OFDI and GFCF (gross fixed capitalformation) for the sake of revealing whether the bloom of OFDI will reduce the effectof domestic policy.To understand the link between OFDI and GFCF, we see the underlyingmotivation for investment as a starting point. Then mathematical derivation andempirical evidence are provided to explain the link between OFDI and GFCF. OFDIfor market seeking is very important in our country’s outward investment. OFDI formarket seeking can be divided into OFDI to gain market access and OFDI to hedgetrade barriers. Through mathematical derivation, we address OFDI to gain marketaccess can increases home country GFCF; OFDI to hedge trade barriers can leaveunchanged home country GFCF; On the basis of mathematical derivation, this thesisuses China’s26representative provinces’ data, time period2003to2009, to makeempirical test. The results show that OFDI to gain market access and OFDI to hedgetrade barriers have complementary and positive impact on domestic gross fixedcapital formation. The conclusion shows that each type of OFDI will not reduce GFCFin China. So we should encourage domestic enterprises to carry out foreign directinvestment and participate in international economic cooperation positively.