Research On FDI And The Growth Of Chinese Domestic Manufacturing Under Institutional Constraints

Institution is an important scare element. Change of institution will promoteeconomic growth when it is constrained by institution. Based on new institutionaleconomics theory, not so much the capital accumulation and technological progress causeeconomic growth, but the economic growth itself. In some developing countries, rely onmassive government intervention in the market to promote the economic growth. If theeconomy is relatively stable, institutional factors can be ignored. While in economictransition countries, the effect that institutional factors on total factor productivity can notbe ignored, institutional factors are key to economic growth. Only provides an effectiveincentive system can we promote capital accumulation and technological progress. Withforeign direct investment into the host country, multinationals bring rational institutionelements and to some extent accelerate the reform of the institution of the host country.The host country’s government and business perfect their income distribution andproperty rights system by imitating. The improvement of institution provide host countryenterprises a better chance to use FDI.In this paper, we study FDI spillovers effect on domestic manufacturing outputunder the constraints of institution. First, we use the1993-2010series data of FDI anddomestic Chinese manufacturing output to carry out Granger causality test andcointegration test. It is concluded that both are causes of Granger causality in the shortterm, but in the long term FDI and manufacturing output does not exist cointegrationrelationship. Granger causality test explain that two variables have mutual interactions;impulse response analysis results show that there is a certain time lag of FDI spillover.Then, we use panel data from2007to2011to carry out analysis of regression: whenconsideration of institutional factors, the reason FDI technology spillover effectmanufacturing output is mainly our favorable institution. With the improvementinstitution, the effect that FDI influence domestic manufacturing output graduallyincrease. The development of private economy can exhibit the economic dynamic. Thechange of institution, in particular,the development of private economy promote domesticmanufacturing output. The more perfect of institution, the larger FDI promote manufacturing output; in addition, the positive coefficient of FDI and the cross variablesshows that two variables mutually reinforce each other.