The Empirical Analysis Of The Impact Of FDI On China's Eastern, Central And Western Regions' Economic Growth

With the development of economic globalization, the trend of the liberalization of international capital flows is obvious. Since 1960s, the foreign direct investment (FDI) dominated by transnational corporations has been growing rapidly and it has gradually become the leading force in international economic transactions. Since China's reform and opening up, China has adopted a series of preferential policies which proved to be effective to attract foreign investment. At the beginning of this stage, the main form of the capital inflows are loans, while FDI only contributed to a small part. As the development China's market economy and the continuous improvement of investment environment, the amount of annual inflows of foreign capital in China are expanding, its structure is optimizing and its quality is improving. However, the geographical distribution of FDI in China is unbalanced, characterized by 80%of the FDI inflows into the eastern region, while the inflows of FDI into the central and western region are less than 20%, what's more, this gap has been widening. Meanwhile, the average annual rate of China's economic growth is as high as 10%. However, at the same time, China's regional economic development is unbalanced as well, representing by the rapidly economic growth of the eastern region compared with the central and western regions. Hence, there arise several questions:whether FDI has a positive effect on in China's regional economy growth? And is there any difference among these three regions about its effects? What are the causes? How to maximize the growth benefits of FDI so as to serve China's regional economic growth coordinarily? This article attempts to answer these questions.This article, which based on the previous studies and uses the methods of the combination of theoretical and empirical analysis, analyzes the impact of FDI on China's eastern, central, and western regional economic growth, and further discusses the causes of the differences of FDI-growth strengths between these regions. Firstly, this article elaborates the relative theories about relations between FDI and regional economic growth, including the "double-gap" theory and the expansion of the "four gap" theory of the development economics, neo-classical growth theory and endogenous growth theory. Then, this article describes the situations of inward FDI and economic growth of China's eastern, central and western regions. The author found there exist significant differences been these three regions about their amount of inward FDI and GDP growth rates. This article further discusses the transmission mechanisms of FDI-growth relationships, including the static and dynamic mechanisms. On this basis, this article establishes a model to analyze the FDI-growth effects among three regions. The empirical analysis methods include unit root test, cointegration test as well as Granger causality test of time series data and panel-data model analysis. Cointegration test results reveal that there exist long-term stable relationships between FDI and GDP growth rates. Granger causality test indicates that FDI is a major cause to promote regional economic growth. Panel data model specifically measures FDI-growth effects among three regions. This article clearly stated via empirical analysis:(1) FDI has a positive effect on China's regional economic growth, and its'effects decreasing from east region to west region; (2) The regional differences of the internal resources factors, such as marketization levels growth rates, human capital levels, infrastructure levels, FDI agglomeration degrees as well as of R&D levels is the causes of the FDI-growth effects differences among three regions; (3) Domestic investment, labor force, import and export, marketization are major forces to promote regional economic growth. Based on in-depth study, this article further puts forward several suggestions:(1) Attracting inward FDI of high quality, and actively guide the flow of FDI into the western region; (2) Improving the environment of the central and western regions, so as to increase FDI-growth effects within these regions; (3) Increasing the domestic investment, employment, export and import, the levels of the marketization and the levels of human capital to promote the coordinate regional economic growth.