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The Effect of Foreign Direct Investment on Domestic Capital Formation, Trade, and Economic Growth in a Transition Economy: Evidence from China by Gang Xu and Ruifang Wang is a Economics, Econometrics and Finance article available to read on EtoBox.

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Studies of the effects of foreign direct investment (FDI) in the developing countries have reported many conflicting results. In this study, we test the effects of inward FDI on China's domestic capital formation, exports, imports, and GDP growth. To that end, we estimated four econometric equations using a data set covering the 1980-1999 period. A key finding of our research is that it was in the 1990s that inward FDI began to exert a significant effect in the Chinese economy. Our regression results show that the inflow of FDI has stimulated domestic investment in China. The growing presence of FDI appears to have enhanced the investment efficiency in the Chinese economy. Inward FDI is also found to have significantly increased China's exports and imports. The policy implications of our main findings are discussed. Several methodological issues pertaining to FDI research in China are also discussed.

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Author

Gang Xu and Ruifang Wang

Publisher

Walter de Gruyter GmbH & Co. KG; World Scientific ; Walter de Gruyter GmbH; World Scientific Pub Co Pte Lt (ISSN 2194-5659)

Published

2007

Language

EN

Field

Economics, Econometrics and Finance (Social Sciences)