The Role Of Chinese Foreign Direct Investment To Comparative Advantage Transformation

Since the reform and opening up to the outside world in 1978, the economy of China has developed very fast with the pull of export trade and foreign direct investment. However, the export trade of labor-intensive products has entered a bottleneck period. China has to achieve the dynamic conversion of comparative advantage in order to ensure sustained and rapid economic growth.First of all, this paper reviews the theories and literature about outward foreign direct investment and comparative advantage. Then it comes up with a hypothesis to be tested:the dynamic conversion of comparative advantage. The hypothesis considers outward FDI as a continuously dynamic process including the stage of learning technology, accumulating experience and making use of the advantage of enterprises. Developing outward FDI is a process not only to nurture the advantage of enterprises, but also to converse the comparative advantage of a country.The mechanism include:to accumulate capital through gaining international finance, increasing commodity and labor export and repatriating profits from oversea production; to realize technological progress through acquiring high-tech and then reforming and spreading domestically; to eliminate resource bottleneck through acquiring resource supply overseas; to keep traditional industries alive and promote new industries'growth through transferring traditional industries overseas. All these will ultimately achieve industrial upgrading and comparative advantages's conversion.Then the paper analyzes the status quo of china's comparative advantage and comparative advantage has not formed yet. In face of the condition, developing outward FDI to realize the dynamic conversion of comparative advantage is the only way for China's economic development.On this basis, this paper users empirical research method such as Granger causality test, regression analysis as well as case studies to prove that the development of outward FDI from China can promote the dynamic conversion of its comparative advantages.Finally, considering the historical experience of developed countries, this paper points out that there are some shortcomings in the management of outward FDI, and then provide some policy recommendations.