Capital Flows And The Economic Growth

For the problem of if the free movement of capital impact gravely on the economy, supporters of the liberalization of capital flows figure that capital flows can promote economic growth also played a key role on financial integration of developing countries. Different country has different level of economy and fiscal policy is different too, so to obtain a consistent result is not possible in the empirical test. In the context of the economic crisis the key problem of each country is to promote its economy to recovery.Each country will try every means to promote their growth. In order to stimulating domestic demand, promote domestic investment in their internal growth, attract foreign investment is still the entry point. Foreign investment in such circumstances is a very effective way to promote the growth. Only because of that in the present context, the capital of normal economic situation can not flow as free as usual so capital how to promote economic growth at this time is unique.Actually, different countries have different degrees of restrictions of capital flows, there cannot be a wide-close or a wide-open country of capital. Every country is extraordinarily cautious in the formulation of fiscal policy and monetary policy. Even in such conditions, capital is still liquidly, the global economic downturn cannot make the capital only exist in one country. the capital always searching the benefits itself, that will flow to the high income areas (unless the policy limit, in practice this is not easy to achieve.) Since different countries have different interest rates and exchange rate, capital flows. When the capital flows to a new country, bring a series of changes in the country, such as the spillover effects and the exclusion effect. In essence, the purpose of a country attract foreign investment is to promote domestic economic growth, the improvement of productivity and productivity, but there also has another problem that capital inflows bring the relevant issues, particularly the impact of national financial system. These are the policy makers need to weigh.Many scholars use the data of different countries in different periods of FDI and GDP in the empirical analysis, the conclusion is different. The study concluded that for some developed countries, GDP and FDI are not relevant; for some rapidly developing countries, they affect each other; for some developing countries, there is a positive correlation between GDP and FDI, the specific contents I will mention below. So the relationship between FDI and GDP is unique.In this article, in addition to theoretical analysis, empirical testing fasten on the relationship between China's foreign capital flows and economic growth. After reform and opening up, China's FDI inflows have been rising, while economic growth is stable and fast. Therefore, studying the relationship between GDP and FDI will have practical significance. In the article, starting with introduce and analyze the theory of economic growth and through the data comparing to empirical test in order to arrive the relation of the capital flows and China's economic growth. Of course, these are theoretical analysis, because this time is particularity, we need to draw appropriate policy recommendations, not only to promote China's economic development, or the maturity of the financial system, but also corresponding to avoid the problems caused by foreign capital inflows and domestic capital flight.The article is divided into six parts, the first part is an introduction, introduce the background and main topics of domestic and international research results on the question capital flows; The second part is the basic concepts and understanding of the theory of economic growth and capital flows; On the third part I study the relationship between the described elements and O analysis, including the factors which affecting capital flows; The fourth part of the article research the relationship between the FDI inflows of capital and GDP and economic growth indicators of the application the Solow model and Granger causality analysis; The fifth part introduce the concept of international balance, find balance by adding elements of capital flows; The last part introduce the policy recommendations by the above analysis.