An Empirical Study On The Effect Of FDI On Chongqing's Economic Growth

FDI is one of the important factors which influence the global economic growth. FDI has great effect on domestic investment, employment, technology progress, trade, balance of payment, etc. Estimation of the impact of FDI on local economy is an important issue in economics. Together with China entering into WTO and exploitation of west China , Chongqing get a chance to attract more FDI. In this condition, we not only should understand deeply the level of economic development and the state of FDI in Chongqing ,but also need to analyze the relationship between economic growth and FDI, study systematically how FDI influences the economic growth to give some empirical support and help to the adjustment of the policy of absorbing foreign capital in the future.The job I did are as follows: first, review theory of economic growth and FDI, refer to a model including FDI to explain how FDI influence economic growth; then using statistic data from 1985 to 2004, analyze the current situations and structure of FDI in Chongqing in the respects of aggregation, manner and source of investment etc. to find out the characteristic and problem existing in absorbing FDI ; after that do Granger No-causality Test to examine the relation between FDI and economic growth in Chongqing, the results show that FDI does Granger cause GDP, GDP of second industry, GDP of third industry. Based on theoretical framework of vector error correction model (VECM), test the labor input effect, capital accumulating effect in long run and set up VECM to confirm the impulse in short run, the results indicate that FDI promote employment in Chongqing, but the capital accumulating effect of FDI is still uncertain. Furthermore test technology spillover effect of FDI on economic growth by co-integration equation, the result shows FDI in Chongqing surely promote technology improvement but the level is lower than average level in China. In the end, some suggestion was given to improve the policy of absorbing foreign capital in the future in Chongqing.