Provincial Comparative Study On China’s FDI Growth Effect

After implemented the reform in1994, the single financial system of China has involved,to entitling more intellectual property rights and powers to local government. Gradualdevolution of power has made local government adopted newly flexible policy to buildenvironment to attract foreign investment. Regional differences in the level of fiscaldecentralization determine the behavior of local governments existing obvious discrepanciesin the process of competition for FDI. Therefore, it is feasible and necessary to study howlocal governments compete for FDI and its influence on economic growth from theperspective of fiscal decentralization.On the basis of presenting relevant literature, fiscal decentralization theory, foreign directinvestment and economic growth theory, and theory on inter-provincial difference of FDIcompetition and economic growth, first of all, this thesis builds the conduction mechanism onfiscal decentralization, FDI and economic growth. Then it introduces the process of fiscaldecentralization reform and the current situation of FDI introduction in China. Also makes aprovincial comparison on fiscal decentralization, FDI and economic growth. By setting anindex as a measurement of the degree of fiscal decentralization through analysis, we use thefixed effects model of cross section data of China’s29provinces from1995to2012to carryon the empirical research. Starting from the provincial reality, this paper analyzes the effectsof FDI inflow on the regional economic growth in the system of fiscal decentralization fromtwo aspects: one is the analysis of effects on the quantity of FDI introduction made by localgovernment competition; another is the analysis about influence of FDI on economic growth.From the comparative analysis of the results of the model, it is not hard to find that localgovernments in the eastern region has the ability to use more controllable resource for thecompetition of FDI than the central and western regions, due to the differences in economicdevelopment level and in the degree of fiscal decentralization. That is, the fiscaldecentralization is helpful for the entry of FDI in the economic developed areas, while it doesnot significantly attract FDI into economically backward regions. Furthermore, in terms of theinfluential coefficient of FDI on economic growth, it is appearing as a negative one in the east,apparently positive in the central region, while not obvious in the west. Namely, the fiercecompetition for FDI among local governments in the system of fiscal decentralization has ledto the different effect of provincial economic growth.Finally, this paper puts forward to reform China’s fiscal decentralization system and localofficials achievements appraisal system timely and effectively, to have a clear division ofintergovernmental powers and spending responsibilities, to further standardize the transferpayment system, to change the means of FDI competition, to optimize the structure andimprove the quality of foreign capital utilization, so as to better play the growth effect role ofFDI and to promote coordinated development of provincial economy.