The Research On The Non-linear Effect Of Foreign Direct Investment On Regional Economic Growth

Foreign direct investment has been acknowledged as an important factor inpromoting the growth of the host country’s economy. It not only brings capital to thehost country, promoting the host country’s capital formation and accumulation, butalso brings advanced technology, upgrading and promoting the host country’stechnology, which can influent the host’s economy in a long-term continually andpositively. Since the great reform and opening, China keeps expanding theopen-markets and introducing preferential policies for FDI. The effect is remarkablefor the newly increasing FDI. According to a study of the United Nations Conferenceon Trade and Development, China has been the most attractive country for FDI duringmore than ten years. Meanwhile, FDI has been playing an important role in promotingChina’s economic construction.Against the background, many scholars at home and broad has done more andmore deeply researches on the relationship between FDI and the host country’seconomy growth, but scholars hold different opinions. On the basis of literature review,the thesis poses a hypothesis that FDI’s spillover may have a characteristic of stageand FDI at a diferrent level leads diferrent spillovers. Therefore, there may be anon-linear relationship between FDI and the host country’s economy growth, and notthe linear relationship that has been showed in large amounts of literature. Therefore,this thesis establishes a quadratic regression estimate model by using the balancedpanel data of31Chinese provinces from2000to2010. It chooses a fixed effect panelmodel to do econometric analysis, and to do empirical test of the non-linearrelationship between regional FDI and regional economy growth. The result provesthat the hypothesis is true and it does have an optimal FDI level. Further, in order tohave more details about different regions’ optimal FDI levels, we divide all the regionsinto three kinds according to regions’ current FDI levels, and then do the estimates inthree fixed effect models respectively. The outputs also show that there is a non-linearrelationship between regional FDI and economy growth, and the three regions’ optimalFDI levels are not the same. In detail, before FDI reaches the optimal level, FDI causescontinuous positive spillovers. When it is more than the optimal level, FDI will causenegative spillovers to the local economy. What’s more, the thesis compares the effectsfrom FDI at different levels with the effects from local economy factors. At the end of the thesis, it’s the accordingly target policy suggestions.