Effect Of FDI On Economic Growth In Shandong Province

Since the reform and opening up, China is gradual integration with the world financial system. Foreign Direct Investment (FDI) is becoming an important factor to support economic growth in China. In2005, Shandong Province is the third to attract FDI. Foreign Direct Investment (FDI) has been expanding in Shandong Province, however, most share of FDI are concentrated in the eastern coastal areas about80%of the total every year, and other regions accounted for only about20%. However, the uneven distribution squeezes the in-balance of economic growth in our province, but also deepens the regional disparity in China. Therefore it is valuable and meaningful to study the effect of FDI on regional economic growth and regional Disparity in Shandong Province. On the one hand, it is possible to complement the existing research and develop FDI on regional economic growth theory; On the other hand, Shandong Province utilization of FDI in the past experience can be summarized to explore the strategy for the future utilization of FDI. The flowing and the type of foreign direct investment are guided to achieve coordinated regional economic development.Based on the exist situation of regional economic growth in Shandong Province and the Cobb-Douglas production function, we construct multivariate linear function by FDI, domestic capital, labor, human capital, imports, exports as independent variables. The analysis methods include unit root test, co-integration test as well as Granger causality. Time series model can analyze of the impact of FDI on economic growth in Shandong Province, also, Panel-Data model can analyze the impact FDI on the economic development of the different regions of Shandong Province, eastern, central and western.In the empirical analysis, Panel-Data model analysis of FDI on economic growth effect of the three regions can overcome the simple time-series data without reflecting the individual differences and cross-sectional data without reflecting the shortcomings of the time difference.Based on the empirical analysis the main following conclusions are given:Firstly, FDI and domestic investment are both important factors to economic growth, and domestic investment is more prominent to the economic growth than FDI. Secondly, labor, human capital, imports, exports still promote regional economic growth in Shandong Province.Thirdly, FDI promotes the economic growth in Shandong Province in some extent, and its contribution gradually decreases from east to west, hence the disequilibrium is an important reason of regional disparity in Shandong Province.Finally, in order to promote economic growth and narrow regional disparities eastern, central and western in Shandong Province, based on the empirical results the corresponding policy recommendations are given:Firstly, the relationship between FDI and domestic capital should be solved well, changing philosophy and mode about investment, gradually to give national treatment to foreign-funded enterprises. Secondly, it is important to optimize the investment environment the regions to promote the coordinated regional development and transfer from the eastern coastal areas to central and western regions. Thirdly, the government should optimize investment structure and quality to broaden the utilization of foreign capital in the areas and channels, also improve the quality and level of foreign investment. Last, human capital development of the central and western regions should be accelerated, combining with local resources and human capital advantage to attract foreign investment.