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Chinese Economic Development in the Context of Foreign Direct Investment - Research Paper Example

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The paper describes the foreign capital in China that has played a largely positive role in China’s economic development during the reform. According to them, FDI can be more beneficial in many other economic aspects rather than merely solving the capital shortage problem of this developing country…
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Chinese Economic Development in the Context of Foreign Direct Investment
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Download file to see previous pages Fung, Iizaka and Tong, (2002) report that FDI is a significant component in the reform and economic growth of China. After the 1990s, FDI and foreign-invested enterprises became the rudiments in China’s economic growth at the national level and regional level. The investment by the foreign enterprises remains the most important part of the GDP growth during 1992-2006. But the distribution of foreign investment in different parts of the country is not the same. For coastal regions, foreign investment accounts for 14% of total investment and the average GDP growth from 1992 to 2006 is 12%. Three Southern coastal provinces make up the highest GDP growth during that period. They accounted for about 20% foreign investment and 14% GDP growth. But for the inward regions, the foreign investment is as low as 4% and GDP growth is only 10%. In particular, the western inland provinces get foreign investment as low as 3% and only 9% GDP growth. Graham and Wada (2001) show, a positive correlation is observed between investment by foreign enterprises and GDP growth at both the national level and provincial level. This observation might posit that FDI inflow benefits economic growth by inducing higher GDP growth. It is, however, possible that increasing FDI is an answer to increasing economic prospects due to higher growth. Empirically, it is not easy to determine the causal relationship between inflow of FDI in an economy and economic growth. Only it can be commented that increasing FDI inflow has been an important part of China’s growth. ...Download file to see next pagesRead More
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