Financial Development, FDI Technology Spillover Effect And Economic Growth

Currently, the trend of globalization and integration is more remarkable, and the foreign direct investment (FDI) has gradually become the main driving force of global economy, as well as the hot topic in academic circles. Since the reform and opening up, the amount of attracting and utilizing FDI in China has been increasing, presenting a favorable upward trend. In 2003, China overtook the United States to become the country that attracted most FDI. The whole world has been witnessing the rapid development of China’s economy:during recent global economy slowdown, China has maintained sustained and rapid growth and became the second largest economy in the world. FDI generates capital accumulation effect and technology spillover effect, and as domestic economy is more prosperous, a growing number of investment focuses turn to technology spillover. According to previous studies, FDI technology spillover has a positive promoting effect on host country’s economy, however, the display of FDI technology spillover effect is subject to host country’s attracting abilities, and financial development is an important factor affecting the effect of FDI technology spillover. Finance in China is less developed, and the eastern, central, and western financial development is not balanced. In this special context, this study analyzes the effect of China’s financial economy on FDI technology spillover on China’s economic growth.Based on existing researches, this study begins by describing the purpose and significance of topic, reviewing financial development, FDI technology spillover and economic growth related literature at home and abroad, as well as taking some theories as reference. Then, it analyzes the FDI technology spillover effect on economy development, and the mechanism of how financial development affects FDI technology spillover effect to act on economy development. It analyzes a theory model of how financial development affects FDI technology spillover as well. After that, the study describes the current situation of China’s finance, FDI and economy development. Builds an econometric modelwith 31 provincial-level data from 1989-2006 in china,and carries on empirical test and analysis.On the basis of the theoretical model,this study selects panel data,from the year of 1997 to 2013,of 31 provinces in China to carry on the empirical analysis through EVIEWS software.First,from the test of panel data of 31 provinces,it’s observed that throughout the country, the index coefficient of FDI technology spillover effect is positive and that the effect of financial development on the FDI technology spillover positively boosts the economic growth. Then,with empirical test separately on different levels of financial development in Eastern,Central and Western China,the result shows that there’s threshold effect when the financial development amplify the FDI technology spillover effect on promoting economic growth. Eastern China,with higher level of financial development, can increase more positive effect of FDI technology spillover economic growth, and in Central and Western China,financial development scale exceeds the threshold value,which is conducive to the absorption of FDI technology spillover effect.Financial development efficiency is still lower than the threshold value,which limit the ability of FDI technology spillover effect to stimulate economic growth.Finally, based on the conclusion of the empirical analysis, this study brings forward these corresponding policy recommendations:China should constantly introduce and utilize foreign direct investment with reason,should improve the efficiency of financial development and coordinated development of regional finances and FDI, and should adopt the policy of regional financial,in order to effectively utilize financial development effect on FDI technology spillover to promote economic growth.