Impact of Fdi to China Growth
Abstract
The aim of the study is to investigate the impact of foreign direct investment on economic growth in China during the period 1992-2003. The research is based on data indicators of level of GDP and FDI for China during this time period. In research was used simple ordinary least squares method. Through econometric model we defined the relationship foreign investment and economic growth in terms of simple regression. The empirical results show positive but insignificant impact of foreign investment on economic growth. It is seen that foreign investment has a positive impact on economic growth because it serves as a channel through which new technology is transferred from one country to another.
Key words: China, Economic growth, FDI, OLS
Introduction
China experienced a dramatic industrialization since 1978 when economic reforms and open door policy occurred. Economic reform allowed reducing trade barriers which stimulated foreign direct investment rapidly. China entered WTO in 2001.Hence; more rapid development was expected due to fewer restrictions on foreign investment. Manufacturing and technology sectors form a core for production and productivity in China.
Concerning case of China, government can also contribute to growth through three ways: increasing expenditure on education (labor), increase its investment (capital), increase its expenditure on R&D (technology).
There are a lot of reasons for writing this paper on impact of FDI on economic growth in China. FDI played major role in Chinese economy. Eventually, FDI brings about capital. A sufficient amount of capital has been necessary to build up China’s economy and FDI has made a substantial contribution to this. The role of foreign companies has been to use management skills and technology, together with local labor, to improve overall productivity of the economy.
Today China is the second veto power with an annual growth in real GDP in average about 9 %.
If such growth will
The aim of the study is to investigate the impact of foreign direct investment on economic growth in China during the period 1992-2003. The research is based on data indicators of level of GDP and FDI for China during this time period. In research was used simple ordinary least squares method. Through econometric model we defined the relationship foreign investment and economic growth in terms of simple regression. The empirical results show positive but insignificant impact of foreign investment on economic growth. It is seen that foreign investment has a positive impact on economic growth because it serves as a channel through which new technology is transferred from one country to another.
Key words: China, Economic growth, FDI, OLS
Introduction
China experienced a dramatic industrialization since 1978 when economic reforms and open door policy occurred. Economic reform allowed reducing trade barriers which stimulated foreign direct investment rapidly. China entered WTO in 2001.Hence; more rapid development was expected due to fewer restrictions on foreign investment. Manufacturing and technology sectors form a core for production and productivity in China.
Concerning case of China, government can also contribute to growth through three ways: increasing expenditure on education (labor), increase its investment (capital), increase its expenditure on R&D (technology).
There are a lot of reasons for writing this paper on impact of FDI on economic growth in China. FDI played major role in Chinese economy. Eventually, FDI brings about capital. A sufficient amount of capital has been necessary to build up China’s economy and FDI has made a substantial contribution to this. The role of foreign companies has been to use management skills and technology, together with local labor, to improve overall productivity of the economy.
Today China is the second veto power with an annual growth in real GDP in average about 9 %.
If such growth will
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