Foreign Direct Investment And China's Economic Growth Relationship

Since the implement of our reform and opening policy, the scale and amount that we make use of foreign direct investment (FDI) have been increasing, and the effect of FDI on our economy is becoming more and more obvious. At present, FDI has already become an important content and a basic part of our economic construction. In the new situation of our entering WTO and the quick movement of economic globalization, to research the relation between FDI and our economic growth has an important real meaning.This paper first reviews the relative references home and abroad, then by building mathematic models deduces an Euler equation of harmonious economic growth under the frame of endogenous growth theory. On this basis, this paper analyzes how FDI pulls the economic growth of the host country. The result is that FDI first influents the stock and using efficiency of the host country's factors through labor employment effect, the "crowding in " and "crowding out" effect of FDI on domestic investment and technology spillover effect, and then influents the economic growth of the host country.With the theoretical analysis and the history and characteristics of our use of FDI, this paper, using co-integration theory and error correction model, performs empirical tests of the relation between FDI and economic growth and the specific ways in which FDI promotes our economic growth, followed by the explain of the testing results. The results show that in the long run FDI has steady positive correlation with economic growth, labor employment and technological progress, but the output elasticity of FDI is less than that of domestic investment, moreover FDI brings "crowding out" effect. Besides, no matter in the long run or in the short run, FDI is the Granger Cause of economic growth, the level of labor employment and technological progress, which shows that as the synthesis of all the factors, the effect of FDI on our economic growth is on several sides.At last, this paper brings forward relative policies of and suggestion on our using FDI on the basis of the above theoretical analysis and empirical test.