Study On The Impact Of FDI On Economic Stability Of Developing Countries

The developing countries faced with problems of how to develop domestic economy after the Second World War. With the continual investment of foreign capital, the developing countries which are weak in their macroeconomic foundation and infirm in their economic policies are vulnerable to the threat and impact of the FDI. The FDI which is the main form of foreign capital has a mighty influence on the economic stability of the developing countries. Therefore, it is theoretical and realistic to study the economic stability of the developing countries when the FDI is introduced plentifully.This paper consists of six chapters:the research background, the main research content, the research methods and the possible innovations are generalized in chapter one. By reviewing past literatures, current study on this subject from domestic and foreign scholars is summarized in chapter two. The machinery of the influence from the FDI on the stability of the developing countries is analyzed from five aspects in chapter three. In chapter four, basing on the four targets of macroeconomic stability, evaluation index system is invented to calculate the extent of economic stability of the sample countries. The result shows that, since the21st century, China and Malaysia have a stable macroeconomic situation. However, the macroeconomic situation fluctuated in many years in Indonesia, Brazil, Chile and Argentina during that period.In chapter five, we separately employed VAR model and VECM model to analyze the period and extent of the influence of the FDI on the economic stability of the sample countries. Finally, a dynamic panel model is constructed to analyze the general influence of the FDI on the economic stability of the sample countries empirically. The results show that the general influence is negative. From the cross section data, we concluded that the impact of the FDI is different from country to country: though it is positive in China, Malaysia and Chile, it is significant in Malaysia and weak in China and Chile. The effect is negative in Indonesia, Brazil and Argentina. In term of time series, the influence ran negatively in most of years during1987-1999while positively in most of years during2000-2011.The conclusion and suggestion are given in the last part. It is importantly suggested that a stable macroeconomic environment and economic policy system is essential to attain an ideal positive macroeconomic effect when the FDI is introduced by developing countries.