Foreign Direct Investment Relationship With China's Economic Growth

Foreign Direct Investment has become a major way of capital flows as well as an important channel for developing countries to get outer capital with the speedy development of economical globalization and fast flowing of international capital since 1970s. FDI is now playing an more and more role in the world economy for host countries, especially for developing countries.China has made great achievements in the field of FDI since the implementation of reform and opening-up policy. China has been the second largest country to absorb FDI for six consecutive years since 1993 and surpassed US to become the largest one in the world. By the end of December of 2003, the total number of foreign funded enterprises approved by governments at all levels was 465,277 and contract FDI value was US$ 9,43.130 billion, where the actual utilized FDI was US$501.471billion.Based on economic growth theory, capital, human capital and technology are the fundamental elements that determine economic growth. Endogenous growth theory believes that economy tends to converge to its stable state or its equilibrium growth path. That is to say, the lower the real per capita output for each economy compared with its stable status, the higher growth rate it will keep. This is called conditional convergence in economics. FDI is an important component of capital, but it is different from domestic capital, not only because it can add to the capital stocks, improve investment quality and alleviate the employment pressure, but also can make great contributions to economic growth, technology advancement and regional economy for host countries. The latter is just the topic that the thesis attempts to analyze. With the help of the existing literature on the topic, the thesis deduces an endogenous growth model according to modern growth theory, and further constructs an econometrical model with the variable of FDI in it. With the help of statistical data compiled by China Bureau of Economics, the writer makes an econometrical analysis and test of the quantitative relations between the variable of economic growth rate and other ones by using the method of stepwise regression. Then a series of other models are established between economic growth grate and technology, regional and systematical reform. At last, the thesis presents the conclusion and suggestions. The characteristics of the thesis's research method are as follows: firstly, the combination of economic growth theory and empirical analysis; secondly, detailed depiction of the establishment of econometrical models with qualitative analysis as the main research method; thirdly, the combination of empirical analysis, economic development reality and policy research.Chapter I gives a brief introduction of the status of absorption of FDI in China and explains the necessity and feasibility of empirical analysis of FDI. Chapter II traces back to the development history of economic growth theories, where the first section depicts the history of economic growth theory, from classic economic growth theory, Harrod-Domar model, to neo-classical one, and then to endogenous theory. The second section addresses the integration of economic growth theory and empirical analysis. Chapter III is the main body of the thesis. The establishment of models and empirical analysis are included here. The first section aims to construct an endogenous model in accordance with the maximum behavior of firms and residents. The second section makes good preparation for the establishment of econometrical models. The third section establishes and tests the models and analyzes the results. In the section, the aggressive method used is a stepwise aggression with an aim to gain an insight into the logical relations among the variables through their qualitative relations. The regression results prove that human capital; systematical reform, investment and technology improvement are all important elements that can decide per capita output. Economical models also show that FDI can influence technology, systematical reform and...