Research On The Spillover And Agglomeration Effect Of China’s Economy Under The Sovereign Credit Downgrades Of Major Investment Countries

With the globalization of the global economy and the process of trade liberalization,the development relevance and closeness of financial and economic development in of the world are gradually strengthened,and the capital flows between countries are increasingly frequent.Reviewing the emerging market countries history,the eruption of Latin American debt crisis,the frequent Mexico financial crisis,and east Asian financial crisis attributes to the sharp fluctuations of the international capital.The capital inflows transfers to capital outflows,a sharp retreat of the international capital makes the economic development of the emerging market countries suffered an unprecedented impact.At the end of 2009,Greece’s sovereign debt crisis broke out,the country’s sovereign credit rating was downgraded,the intensive capital flows makes sovereign debt crisis spread quickly across the EU and the European economy was in a serious disaster,the economic development of all countries was severely affected and remained in depression for a long time.With the reform and opening and joining the WTO,China’s openness to the outside world degree gradually increases,the communication of the rest of the world in economic,political,and cultural aspects gets increasingly close.The fast development contributes China to become the world’s most popular investment country.Due to the economic growth of China shows the characteristics of "investment-driven",if the main investor in China’s sovereign credit rating gets downgrade,FDI will then cause a sharp fluctuations and the instability of inflow and outflows of capital will lead the economic development of China suffer a serious impact and shock.This paper summarizes multiple current literature,on the basis of capital flow as the main line,to investigate the effect of main investor’s sovereign credit rating downgrade on the FDI of China,explore the spillover effects due to the change of FDI on economic growth of China,and then compare the effect of agglomeration effect which formed between the provinces,which is of great value to help China actively implement corresponding policies and measures to deal with the main investor in the risks of sovereign credit rating.This paper first states the theory of sovereign credit and capital flows,capital flows and economic growth,spatial spillover and spatialagglomeration effect.Then,this paper’s research method is based on the new geographical economics,using spatial econometric method,conducts empirical test to investigate the effect of credit rating downgrade on the FDI of China,the study finds that the main investor’s credit rating conditions is related to China’s foreign direct investment and has a significant role in promoting China’s economic growth.Then,this paper builds a economic growth model which contains spatial spillover effect,and the study found that the change of FDI will have significant effect on growth of economy.The more foreign direct investment is absorbed,the faster the economic growth will be.A large number of investment provides extensive employment opportunities,bring advanced technology and management advantages,and becomes the catalyst of rapid economic development in the domestic provinces.Finally,this paper further analyzes the impact of main investor downgrades on regional economy in our country and compares its agglomeration effect between provinces,the empirical finding proves that China’s eastern,central and western economic regions economic growth is not balance.Eastern regional,both in spatial correlation of provincial economic growth and foreign direct investment on provincial economy growth promoting role,is more obvious than central economy region and western region.