FDI, Financial Development And Technological Progress Of China’s Manufacturing

Since the1990s, the amount of FDI which flows into China has been growing. Atpresent, China has become one of the world’s major countries attracting FDI. In China,manufacturing has been the largest industrial sector attracting FDI. As an importantchannel for international technology diffusion, FDI can promote technologicalprogress of China’s manufacturing to some extent. But this role may be affected bymany factors. Financial development is one of these factors. Recently, China’sfinancial sector continues to expand, but its efficiency remains low. Whether financialdevelopment will affect the role of FDI in promoting technological progress is a realproblem that faces China’s manufacturing. This paper does research into the impact ofFDI on technological progress of China’s manufacturing from the perspective offinancial development in order to draw some meaningful conclusions.Based on the review of relevant literature, this paper analyzes the relationshipbetween FDI, financial development and technological progress of manufacturing ofthe host country from the perspective of the size and efficiency of financialdevelopment and points out the possibility of "threshold effect" based on financialdevelopment. Then this paper describes the status of FDI, financial development andtechnological progress of China’s manufacturing. This paper analyzes the size ofChina’s financial development based on manufacturing according to the proportion ofcredit financing, estimates the efficiency of financial development through BC2modelbased on DEA (Data Envelopment Analysis), and measures technological progress ofChina’s manufacturing according to Malmquist index based on DEA. After that, thispaper makes an empirical test on the relationship between FDI, financial developmentand technological progress of China’s manufacturing by establishing the "thresholdeffect" measurement model and selecting China’s manufacturing industry data, andthen divides manufacturing into two types and makes empirical tests separately. Theresult shows that "threshold effect" based on financial development exists in theimpact of FDI on technological progress of China’s manufacturing and financialdevelopment exerts different effects in different types of industries. According to theabove conclusion, this paper puts forward some countermeasures.