Empirical Research On Threshold Effect Of FDI On Economic Growth

Since the reform and opening up, China began to introduce foreign investment. The amount of FDI has changed from less to more. As an important source of capital supplement and technological progress, foreign direct investment has very important significance to the economic growth of China. However, with the introduction of FDI, its adverse effects are emerging. On the one hand, local governments of different provinces compete to introduce as more foreign direct investment as possible. Therefore, the scale of foreign direct investment has been expanding all the time, which poses a big pressure on resources and the environment. On the other hand, the large amount of inward foreign direct investment causes the rapid growth of China’s foreign exchange reserves. As a result, the equilibrium of balance of payments is affected. In recent thirty years, great changes have taken place in our country. Under the new economic situation, the research of FDI on economic growth is still the research focus. Therefore, it is practically meaningful to analyze FDI from the prospective of human capital, financial development and industry structure.This paper analyzes the threshold effect of FDI on economic growth by adopting the combination of qualitative description and quantitative empirical analysis method. Firstly, it gives a brief introduction of total amount, industry distribution and location based on data collection. Secondly, this paper used the Non-Dynamic threshold panel Model to analyze to threshold effects of foreign direct investment on China economic growth. The selected panel data is29districts of China from1992to2011and the threshold variables to study are human capital level, development level of financial markets and the industrial structure. Finally, the paper compared the estimated threshold values with true values, so as to determine the state of different districts.The result showed that most of the districts in China have passed the minimum human capital threshold, most districts remains between the lower threshold and higher threshold of development level of financial markets. As to the industrial structure, it is shown that the higher proportion of second and third industry, the apparent the positive effect of foreign direct investment will be.As a conclusion, this paper has put forward several suggestions to improve the utilize efficiency of foreign direct investment, such as transforming the extensive utilization of foreign direct investment, readjusting industrial structure, enhancing human capital and improving the efficiency of financial markets.