The Mechanism To Promote China’s Economic Growth And The Marginal Effect Of Fdi

With the development of China’s opening policy, the amount of foreign direct investment (hereafter referred to as FDI) in China has been keep growing, and plays a decisive role to China’s economic growth. FDI can promote host country’s economy through capital formation, foreign trade, employment effects and technology spillovers. So it’s important to research how the FDI influence our countries economic through the above mechanisms.This paper analyses the development of FDI in our country on theoretical analysis, and then carries out a descriptive analysis of FDI to China’s economic growth from capital formation, foreign trade, employment effects and technology spillovers. Then the paper analyses empirically the effect of FDI to China’s economic through the four mechanisms with the date of China at the national level. The paper also analyses the dynamic marginal effect change rule of the FDI to China’s GDP and manufacturing total factor productivity.The results show that:FDI causes crowing-out effect to China’s capital, expands trade scale and improves trades structure. FDI can promote China’s employment in the short term while it piles out employment in the long term. FDI mainly has direct effect on the low level manufacturing industry while has indirect effect on the high level manufacturing industry. The result of marginal effect analysis shows that the marginal effect of FDI on China’s GDP presented descending at first and then rose but now it is in the undulate stage. As to the TFP of different technical level manufacturing, FDI has different marginal effect, because different industries have other factors which can influence TFP in addition to FDI. The marginal effect of FDI to the TFP wholly shows the law of diminishing returns.Finally, according to the results of empirical analysis and descriptive analysis, the paper puts forward policies suggestions on how to introduce FDI to our country in the future.