China's FDI And It's Policy Adjustment

Till 2006,it has been 28years since China first carried out reforms.For the last 28years,we have many break-through in FDI utilization.As for FDI,we start from small scale to big one,and has formed a pattern of all-orientation,multi-arragement,wide-field. Nowadays,FDI has brought important and far-reaching influence on China's economic development.On the whole,the effect of FDI on China's economy mainly are economic growth,technological improvement,foreign trade and employment.Whereas,it will be kind of risk when the ratio of FDI in China has surpassed a certain degree of limit. Therefore,it is necessary to analyze the FDI effect systematically,to study thoroughly the influence caused by FDI.We have to fully make use of the positive effect of FDI,and also have to be aware of the negative effect of FDI,and to take efficient measures to reduce negative effect so as to make use of FDI more efficiently.The main method used in previous documents is time setries method,however,as for the imbalance distribution of FDI in China,this method can't calculate FDI effect precisely,and therefore,dynamic panel data model is utilized in this dissertation.But the biggest problem is the estimation techniques in utiliazing dynamic panel data model,in this model,lagged dependent varables are used as regressors,which will lead to correlation between regressors and error terms.If we still use standard FE or REM to estimate dynamic panel data model,we'll definitely have inconsistent estimators,and the economic meanings derived from estimation results will be distorted too.So,Generalized Mehod of Moments(GMM),which was prorosed by Arellano and Bond(1991),Arellano and Bond(1995),Blundell and Bond(1998),is utilized in the empirical analysis.GMM utilizes instrument variables to solve the inconsistency problem when FEM and REM are applied to estimate dynaimic Panel data model,therefore,the key question is to find valid instrument variables.In the part of empirical analysis,by using dynamic panel data model and ECM,we come to following conclusions:FDI effect on economic growth is not as great as that stated in the previous documents,and the effect also has lagged time effect and regional difference;FDI effect on technological improvement is not obvious,which also means strategy of "Market for technology" is not successful;FDI is helpful to promote export of manufactured products,which will help improve the structure of export,and increase export competitiveness;FDI effect on job creation is not obvious,and the FDI effect on employment may become substitution effect as time goes by,both of the creation effect and substitution effect have regional difference.The final part of this dissertation will put forward some corresponding suggestions based on the previous empirical analysis.