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Gradual Financial Liberalization, Fdi, and Domestic Investment: Evidence From China's Panel Data

Author

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  • Qichun He

    (Central University of Finance and Economics, China)

Abstract

We argue that how inward foreign direct investment (FDI) affects domestic investment (DI) depends on the degree of financial deregulation. Utilizing the Chinese experience and its panel data, instrumenting FDI with weather indicators (validity supported by over-identification tests), our limited-information maximum likelihood (LIML) results suggest that both FDI and its interaction with financial deregulation have a significant negative effect on DI. It means FDI significantly crowds out DI in China, and higher degree of financial deregulation reinforces the crowding-out effect. The results are robust even after controlling for other growth factors, and time and province effects.

Suggested Citation

  • Qichun He, 2012. "Gradual Financial Liberalization, Fdi, and Domestic Investment: Evidence From China's Panel Data," Journal of Developing Areas, Tennessee State University, College of Business, vol. 46(1), pages 1-15, January-J.
    • Handle: RePEc:jda:journl:vol.46:year:2012:issue1:pp:1-15
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    Citations

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    Cited by:

    1. Qichun He & Meng Sun & Heng-fu Zou, 2013. "Does Fiscal Decentralization Increase the Investment Rate? Evidence from Chinese Dynamic Panel Data," CEMA Working Papers 592, China Economics and Management Academy, Central University of Finance and Economics.
    2. Mori Kogid & Jaratin Lily & Rozilee Asid & James M. Alin & Dullah Mulok, 2022. "Volatility spillover and dynamic co-movement of foreign direct investment between Malaysia and China and developed countries," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(1), pages 131-148, February.
    3. He, Qichun & Sun, Meng, 2014. "Does fiscal decentralization promote the inflow of FDI in China?," Economic Modelling, Elsevier, vol. 43(C), pages 361-371.

    More about this item

    Keywords

    Foreign Direction Investment; Gradual Financial Deregulation; Interaction; Crowding out; Panel Data;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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