Business Cycles And Inward FDI

The current speeding-up of globalization has been, on one hand, spreading macro economic effects around the world, while, on the other, fueling firms'activities of crossing national borders. Then, are there any links between these two influences? Although so far there are few researches on the exact spreading channels of the macro economic influence, multinational activity is publicly believed to be a possible one, as Hanson and Slaughter (2003) have pointed out that the internationalization of production and international business cycle developments might be linked. However, they also note that to study business cycles and multinational activity simultaneously is a fairly underdeveloped area in international economics.This paper chose China, one of the largest FDI receiver around the globe, as our research subject, employed the 1984-2004 panel data and initially constructed a model of endogenous economic growth and practised some econometric estimations and empirical analysis, such as Corelation test to find the original power of inward FDI towards economic growth, Johansen Cointergration test to decide whether the relation is stable and long-term, Granger Causality test to check the way how they relate, VAR Impulse Responses to test their sensitivity towards each other's change and Regional Segment Analysis to investigate whether the inward FDI widened the regional gap, etc.. The main results are abundent human capital and well-arranged policy and market environment could obtain more FDI inflow to improve economic development; firms'(foreign) activities (inward FDI) does respond pro-cyclically to business cycle developments in the long term, which means inward FDI developes business cycles which in turn attact more FDI inflow; and the unbalanced replacement of inward FDI, to some extend, widens the gaps among Cinese Easten, Middle and Westen regions, thus the Central government should timely adjust the difference among the regional FDI inflow .