Financial Development, Human Capital Flow And FDI Spillovers

The FDI spillover effects and the investment of human capital have great impact on promoting a country’s economic growth. It is of great significance for developing countries to refine their manufactural technique by effectively absorbing technology contained in the trade and investment goods of developed countries. Therefore, technology spillover effects originated from international trade and capital flow have become one of the most important research content for both Chinese and international economists.At this time, the relations among countries’ economy in this world have become more and more intimate and intricate. FDI has become one of the most essential way of technology spillovers, Because of which, more and more countries engage in appealing FDI to strengthen their economy. The contributions of FDI to national economy can be concluded into two aspects, captial accumulation effects and spillover effects which refer to the promotion of productivity benefited from absorbing knowledge spillovers in FDI. However, the spillover effects can be limited by a country’s competence of acceptance. There are many factors affecting one country’s competence of accepting FDI spillovers, two of which can be the level of financial development and human capital stock and flow. Besides their respective influences, the cross impacts of the two factors on spillover effects are also remarkable and far-reaching.Financial efficiency and openess level can be regarded as two most important indexes reflecting a country’s financial development. Moreover, human capital flow is the most essential way of FDI spillover effects. Financial development could affect a country’s ability of absorbing FDI spillovers through two mechanisms. One mechanism is that higher level of financial efficiency implies lower financial cost, which results in more human capital flowing from foreign corporations to establish their own enterprises. Those new corporations themselves are products of FDI spillover effects and also sources of continually absorbing FDI spillovers. In that case, higher level of financial efficiency would enhance a country’s competence ofabsorbing FDI spillovers. However, another mechanism is that higher financial openess level results in more foreign corporations entering into China, which would motivate more human capital flowing from state-owned enterprises to foreign companies based on higher salary and better work conditions foreign companies provide. That would undoubtedly weaken FDI spillover effects. In that case, exploring the impact of financial development on TFP growth rate and the relationship among financial developement, human capital flow and FDI spillover effects can be of great significance to analyze the general impact of Chinese financial development on China’s ability of absorbing FDI spillovers. Also, the results would provide necessary foundation for subsequent researches.In this paper, Chinese financial developement is measured by two indexes, financial efficiency and openess level. For financial efficiency level, I select 5 indicators to reflect,3 from credit market and 2 from stock market. For financial openess level, use ratio of quantity of financial capital flow and GDP to indicate. Besides, use growth rate of TFP and ratio of foreign and state-owned companies staffs as indicators of China’s competence of absorbing FDI spillovers and human capital flow situation. Based on the index system established in this paper, construct two regression models to estimate the impact of financial development on TFP growth rate and the relationship among financial development, human capital flow and FDI spillovers. The research purpose is to exactly answer two questions. One is that whether the financial development has a remarkably direct effect on China’s competence of absorbing FDI spillovers. Another is that from the angle of human capital flow, what the general impact of financial developement on FDI spillover effects is. The empirical results show that higher financial openess level could noticeably weaken China’s ability of absorbing FDI spillovers by resulting in serious human capital loss of state-owned corporations. Furthermore, compared with credit market, stock market plays a more important role in affecting China’s competence of absorbing FDI spillovers, but it has negative effect in the growth rate of Chinese TFP. Finally, there exists no remarkable regional difference in relation between financial development and FDI spillover effects. Based on empirical results analysis, provideseveral policy advice including deepen state-owned corporation system reform, refine the credit market mechanism and propel stock market development.