The Study On FDI Effects On Adjustment Of Industry Structure Of China Under The Institution Constraint

As a transition country, China has long-term and large inflows of FDI along with theeconomic growth and industrial structure optimization. Trough the trend of FDI inflows, we foundthat the fluctuation trend was the same as the trend of the evolution of Chinese adjustment ofindustry structure. Can we judge the fact that FDI is benefit for Chinese industrial structure onlyaccording to the concordant variation trend? The thesis gives a doubt answer and holds the ideaof a necessary further analysis. In this background, this paper discussed the mechanism of theinfluence between the FDI and China’s industry structure and revealed their relations afterchoosing the perspective of spatial economics and institution constraint. All above will enrich andadd our understanding of FDI and industrial structure.In the beginning, the article reviews and summarizes the domestic and foreign scholars’related research on the reason of FDI inflows and the influencing mechanism between FDI andindustrial structure adjustment and FDI effects on industry structure. It is found that the scale, thetype and the reason for its flowing is different with the classical FDI theory.Second, this paper gives some reason for FDI inflows including technology, locational factor,and institution, then analyses Chinese FDI untypical characteristic of oversize scale, low quality,scattered industry and regional distribution and exclusive investment.Third, this paper describes the mechanism of the influence between the FDI and China’sindustry structure on the perspective of institution constraint. In detail, FDI has the income growtheffect produced by the capital supply and spillover effect and the income leakage effect caused bythe overseas ownership. When Chinese institution constraint deepens dependence on FDI, FDI inChina will have more income leakage effect than income growth effect. Consequently, the finalFDI effect on Chinese industrial structure depends on the comparison of two effects.Last, this paper use empirical model to prove the relations between FDI and industry structure,the data of the amount of FDI inflows and industry’s share of GDP from1985to2011and ECMmodel are adopted. In the end, we drew a conclusion that the proportion of the secondary industryin GDP would decrease as FDI increased and demonstrate a U-shaped trend, however, FDI makean enlargement for the share of the tertiary industry in GDP with a diminishing trend. Overall, FDIwas helpful to the industrial structure in China, but the effect was a trend of inverted U. in future,China must eliminate the institution constraint and improve the efficiency of FDI to play its best.