Analysis On The FDI’s Effect Upon Domestic Investment

Foreign direct investment is the main form of foreign investment in China, in the last three decades that after the China’s reform and opening, the government has made remarkable achievements in the introduction of the foreign direct investment. As the introduction of a large number of foreign direct investment, it has had a major impact on the various aspects of China’s economic development, such as capital formation, technological progress, employment, import, export and so on. Except that, with the entry of a large number of foreign direct investment, there will be an unprecedented press and challenge. In the early stages of the reform and opening up, many economists agree the view that the foreign direct investment has a positive effect on the development of China’s economy, but as the expanded scale of foreign direct investment, it has had some negative effects on the development of China’s economy, such as the disappearance of national brands, the imbalance of the industrial structure, the negative effect on the capital formation and so on. As the improvement of investment environment in China, the improvement of domestic enterprises investment capabilities, there are more and more scholars begin to pay more attention on the object that if the foreign direct investment crowds the domestic investment? There are a lot of scholars at home and abroad study the issue in theoretical or empirical. The studies on the issue in home are most on the whole country economy or on the regional economy, so they ignored the difference in the industries, so the policy cannot fit the development of all the industries, cannot make full use of foreign direct investment, or even it will inhibit the development of some industries. In order to make clear the impact of foreign direct investment on the domestic, the paper will analyze the impact of foreign direct investment in industries on the domestic investment in industries. Through the empirical work, we will analyze the issue. From the perspective, we will discuss the issue from the following aspects, and the fourth part and the fifth part are the core of this paper. Chapter one, introduction. This section will introduces the significance of the topic in the paper, and main research methods used in the paper, the idea of the paper in writing, there is also a simple introduction on the related concept in the paper, and this section also introduce the mechanism of foreign direct investment that how foreign direct investment effect the domestic investment of host country.Chapter two, the literature review. This section will review and analyze the studies in theoretical analysis and empirical analysis, try to find the entry point. Trough the review and analysis, we study the impact that foreign direct investment on the domestic investment in industrial.The third chapter will analyze the current situation of china’s foreign direct investment in industrial sectors, including the position of foreign direct investment in industrial investment, the situation analysis of foreign direct investment in industrial sectors and the industrial output value, the situation of foreign direct investment in every industrial sector, and the effect of foreign direct investment to the development of china’s industrial sectors, so we can have a general understanding on the foreign direct investment in industrial sectors. Through the above analysis, we can see that the foreign direct investment in China is mainly concentrated in the industrial sectors, though it has shown a downward trend, that means the industrial sectors are the main objects in utilizing foreign direct investment, in the industrial sub-sectors, the foreign direct investment is mainly concentrated in the consumer industry. The similar development trend in foreign direct investment, in the investment of china’s enterprises in industrial sectors, and in the output value of industrial sectors, the similar development trend in industrial investment of domestic enterprises(or growth) and the industrial investment of foreign enterprises(or growth), which explain to some extend that there is a link between them.The fourth chapter is the empirical analysis. First we will have a simple introduction of the model and the related data, then is the result and the corresponding analysis. After the analysis, we can see that foreign direct investment has no significant effect within the industrial sectors. But the technology gap between foreign enterprises and the domestic enterprises, and the motivation of foreign direct investment have effect on the results.The fifth chapter is the analysis of the reasons that foreign direct investment crowds out domestic investment. Including the imbalance of foreign direct investment in industrial structure and in the way of investment, the lower level of technology of china’s domestic investment, the defect of china’s investment and financing system and the relative police, the super-national treatment that foreign direct investment enjoyed in China, the inadequate laws and regulations and so on. The sixth chapter is the policy proposals and concluding.The paper is based on the research of elders, the study object is the impact of foreign direct investment to the domestic investment. The paper analyzes the mechanism that foreign direct investment has effect on domestic investment, the present situation of foreign direct investment in industrial sectors, through the empirical analysis, we try to find how foreign direct investment affect domestic in industrial sectors. After the above analysis, in the end of the paper, we propose the policy and recommendations that in utilizing foreign direct investment, so provide reference to make more effective use of foreign direct investment in the future.