Fiscal Decentralization, Foreign Direct Investment And Regional Economic Growth

Since the Chinese government adopted the policy of reform and opening-up, our economy developed rapidly over double-digit. At the same time, the bottleneck because of extensive pattern of economic growth has became more and more serious, such as economic growth inefficient, industrial structure imbalance, widening income gap between regions, investment and consumption disharmony, over-exploitation of resources, etc. The root of these contradictions reflects the quality of economic growth which is closely related with people. Now people changed their concern from the economic growth rate to the quality of economic growth. The paper focus on the quality of regional economic growth basing on the economic growth rate and build appropriate index evaluation system of the quality of regional economic growth, in order to investigate the quality of economic growth across the country.Institution is a precondition and decisive force for regional economic growth. The China adopted two important institutional arrangements including the policy of reform and opening-up and the policy of fiscal decentralization since1979, which brought important and profound influence to China’s economic growth. Therefore, the paper researched the effect to rate and quality of the regional economic growth made by foreign direct investment on the text of fiscal decentralization. At the same time, in order to attract more foreign enterprises, local governments competed to give further more preferential policies to foreign enterprises, thus fell into a "race to the bottom "kind of prisoner’s dilemma game. Accordingly, this phenomenon is bound to affect the rate and the quality of regional economic growth coming from foreign direct investment.The paper is basically structured as follows:First, the paper builds appropriate index evaluation system of the regional economic growth quality by starting with the research of connotation and measurement methods of economic growth quality and analyze the regional economic growth quality from five dimensions including economic growth efficiency, economic growth structure, economic growth stability, welfare effects and environmental effects of economic growth using the principal component analysis method. Second, the paper analyzes the influence mechanism to regional economic growth rate and regional economic growth quality made by fiscal decentralization and foreign direct investment and interaction of them from the level of theories and models. At the same time, the paper examines the relationship of fiscal decentralization, foreign direct investment and regional economic growth rate and regional economic growth quality using the method of SYS-GMM and the provincial panel data of1998-2011. Finally, the paper draws conclusions from the direction, the degree and the approach to regional economic growth rate and regional economic growth quality by the two institutional arrangements.The conclusions of this paper as follows:First, from the estimation results of regional economic growth quality, the index of eastern provinces and the Municipalities are higher, but the western provinces’are lower. On the other hand, from the point of time trend, the index of economic growth quality appeared expanded at first and then narrowed as a turning point of2007. Second, foreign direct investment is beneficial to the regional economic growth rate and the index of economic growth quality; Fiscal decentralization can promote the level of index of regional economic growth quality significantly but limited to the regional economic growth rate. Third, fiscal decentralization is beneficial to the optimization and upgrading of the economic growth structure and raising the level of the residents’ welfare; but there was no significant effect to the economic growth efficiency, economic growth stability and the environmental effects of economic growth. On the other hand, the foreign direct investment can improve the economic growth structure and environmental effects of economic growth, but it goes against economic growth efficiency. Finally, fiscal decentralization will strengthen positive effects of FDI on promoting regional economic growth structure while weaken positive effects of FDI on promoting regional economic growth rate, at the same time strengthen negative effects of FDI on impeding regional economic growth efficiency.