The Research On Foreign Direct Investment, Foreign Portfolio Investment And Economic Growth Based On Chinese Data

The effect of various type of international capital flow on the economic growth has always been a hot topic since China became the number one recipient of FDI on 2002. It is obvious that foreign investment has positive impact on the economic growth. Foreign capital can finance investment and stimulate economic growth, thereby smoothing out consumption and increasing the standard of living in the developing world. Capital flows can help developed countries achieve a better international diversification of their portfolios, and provide support for pension funds and retirement accounts into the future. But how much does investment drive economic growth in China? Is there a long balanced relation? This paper provides a quantitative assessment of the effect of various types of capital flow on the growth. The empirical analysis was based on time series annual date from 1982 to 2005 and we found; first, the FDI and FPI contribute positively to long-term economic growth. There is equilibrium between foreign capitals and economic growth. Second, we confirmed that FDI influence on growth is much higher than FPI. Third, FPI is growth enhancing and that its impact is felt both in the short, and the contribution to economic growth will exceed FDI in the long run. From policy perspcctivc, the cvidence convincingly suggests that China is successful in attracting FDI since the implementation of reform and open-up but do not make full use of FPI. With the coming trend of financing liberation and economic globalization, China should keep balance in attracting FDI and FPI.