Foreign direct investment in China : determinants, effects and efficiency
China's phenomenal economic growth has coincided with a substantial increase in FDI inflows and hence led researchers, including the author, to believe that increased inflows of FDI into China has had important implications for the country's trade and economic development over the past decades. The objective of this thesis is to identify and investigate several key issues associated with inward FDI in the Chinese economy. These include the determinants of FDI inflows at the sectoral level, spillover effects of FDI on labour productivity and innovation, the causal linkage between FDI and China's bilateral trade with selected OECD countries, and the performance of foreign funded enterprises (FFEs) compared to the performance of state-owned enterprises (SOEs) in China. This thesis adds to the existing research on the role that FDI has played in recent growth of the Chinese economy by applying new as well as established techniques to China's regional and sectoral data. In particular, it integrates descriptive and empirical analysis to extend existing studies in several ways. First, analyses in the empirical chapters of this thesis are undertaken using data at the regional and sectoral level. Second, this thesis uses panel data from official sources for all empirical examinations. Last, whereas most existing studies have ignored the importance of unit-root issues when using panel data, and therefore possibly producing unreliable results, this thesis employs unit-root tests for all panel data analyses. The key findings in this thesis can be summarized in four points. First, at the sectoral level, for China as a whole, foreign investors are influenced by labour productivity, wage costs and innovation activities but not by the level of state ownership. For Guangdong province, foreign investors are concerned with labour productivity and wages as well as state ownership at sectoral level. However, the level of innovation does not play an important role in influencing inflows of FDI into Guangdong province at sectoral level. Second, the thesis found that FDI generates spillover effects on labour productivity in China although no spillover effects on the level of innovation were detected. At the regional level, it was concluded that the coastal and western regions experience a greater amount of spillover effects from FDI than do the municipal cities. Furthermore, the western region is the only region that experiences greater spillover effects from FDI on innovation than the municipal cities. Also, the spillover effects of FDI appear to be no different prior to or post-1997 when the Asian financial crises occurred. Third, a co-integrating relationship exists between FDI and total trade, FDI and exports, and FDI and imports in China. The thesis further concluded that bidirectional causality between FDI and trade variables exists in China in the long-run. However, short-run causality runs only from FDI to trade. Fourth, the thesis further shows that FFEs in China are more efficient than SOEs. Over time it is observed that SOEs and FFEs in the municipal cities and the coastal regions experienced greater productivity gains than those in the central and western regions during the sample period. It is also concluded that both SOEs and FFEs in the municipal cities have experienced more productivity growth than those in other regions with SOEs in the central region and FFEs in the western region experiencing the least productivity growth.
Source Type:Master's Thesis
Keywords:investments foreign china econometrics economic conditions regional disparities direct investment panel data analysis
Date of Publication:01/01/2007