The Effect of Inward Foreign Direct Investment on Economic Growth in Chinese Provinces

Hiroyuki TAGUCHI, Yining WANG

Abstract


Abstract. This article examines the effect of inward foreign direct investment (FDI) on economic growth with a focus on Chinese provinces by conducting the Granger causality and impulse response tests in a vector auto-regression (VAR) estimation. The study contributes to the reviewed literature by examining the FDI effect in such comprehensive ways as demand-side and supply-side models, and by clearing the endogeneity problem of targeted variables under a VAR framework. The main findings of this study were as follows. First, the positive effect of FDI on economic growth in Chinese provinces was confirmed by all the model estimations: statistical, demand-side and supply-side models. Second, from the regional perspectives, the positive effect of FDI on economic growth was found in the eastern region, but not in the non-eastern region. Third, no crowding-out effect of FDI on domestic capital formation was identified both in demand-side and supply side analyses. 

Keywords. Inward foreign direct investment (FDI), Economic growth, Chinese provinces, Vector auto-regression estimation.

JEL. F21, O47, O53.

Keywords


Inward foreign direct investment (FDI), Economic growth, Chinese provinces, Vector auto-regression estimation

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DOI: http://dx.doi.org/10.1453/jest.v4i4.1507

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