The Empirical Study On FDI, Financial Development And Economic Growth In The Central Region

As the contact of global economy become increasingly close, and China’sinternational economic status is increasing day by day, the inflow of China’s foreigndirect investment is increasing, we pay more attention on the effect of FDI oneconomic growth. For the past few years, China’s financial system reform has madesome substantial results, and the financial market has been growing. Data show thatthe inflow of FDI is increasing year by year, the deposits and loans is also increasing.Many scholars are interested in the relationship between financial development andFDI, they also research the impact of FDI and financial development on economicgrowth. However, domestic and foreign research only concern the national level, fewconcern the regional level. So this article will mainly research the central region, andI will do theoretical research and empirical analysis on the relationship of FDI,financial development and economic growth.This paper review the related domestic and foreign literature, then summarizethe theory of interaction between FDI, financial development and economic growth.After that, I conduct the situation analysis, and analyze the mechanism of FDI,financial development and economic growth. Through capital accumulation andtechnology spillover, FDI will have impact on economic growth. Financialdevelopment can promote economic growth by reducing transaction cost andinformation cost. Financial development of the host country can strengthen the role ofFDI on economic growth by providing financial support to FDI companies for theircapital formation and investment achievement.This paper established the econometric model of financial development and FDI,and established the econometric model of FDI, financial development and economicgrowth. Using central region’s1991-2012time series data to discuss the relationshipbetween financial development and FDI. Then research FDI, financial developmentand their mutual influence on economic growth based on the actual situation of thecentral region. The empirical analysis show that the level of financial development isless developed, financial development can’t be able to provide smooth circulation channels for FDI, thus it can’t promote the introduction and absorption of FDI. Theempirical results also show that the inflow of FDI can make contribution to economicgrowth. But due to the low level of financial development, finance cannot play itspromoting effect on economic growth. And the combined coordination of FDI andfinancial development isn’t ideal, and their mutual influence on economic growthisn’t satisfactory. Therefore, we need to raise the level of central region’s financialdevelopment by improving the efficiency of financial markets and coordinating theregional financial development. At the same time, we need to increase the inflow ofFDI, so as to achieve sustained economic growth in the central region.