FDI and Economic Development: Evidence from Mainland China

Liyan Liu

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DOI: 10.4236/jssm.2011.44047                

Abstract

Endeavors have been made in this paper to discern the long-run relations between FDI (Foreign Direct Investment) and economic development in China in the comprehensive framework, which incorporates determinants as output, FDI, capital formation, employment, human capital and international openness. VAR (vector autoregressive models)Impulse Response, Variance Decomposition, Johansen Co-integration and VECM (vector error correction) have been estimated, focusing on the long-run structural relations; findings indicate that in the long run, FDI tends to decrease economic growth; economic development in China seems to be fueled by domestic capital accumulation and employment growth; FDI inflows do crowd out domestic capitals, and reduce employment growth.

Keywords

FDI, Economic Development in China, VAR, Co-Integration

Conflicts of Interest

The authors declare no conflicts of interest.

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