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The effect of inward foreign direct investment on economic growth: The case of Chinese provinces

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  • Taguchi, Hiroyuki
  • Wang, Yining

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.

Suggested Citation

  • Taguchi, Hiroyuki & Wang, Yining, 2017. "The effect of inward foreign direct investment on economic growth: The case of Chinese provinces," MPRA Paper 80731, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:80731
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    References listed on IDEAS

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    6. Zhang , Kevin Honglin, 2001. "Roads to Prosperity: Assessing the Impact of Foreign Direct Investment on Economic Growth in China," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 54(1), pages 113-125.
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    Cited by:

    1. Najid Ahmad & Mouna Hdia & Hong-Zhou Li & Jianlin Wang & Xian-Liang Tian, 2018. "Foreign Investment, Domestic Investment and Economic Growth in China: Does Foreign Investment Crowd in or Crowd out Domestic Investment?," Economics Bulletin, AccessEcon, vol. 38(3), pages 1279-1291.
    2. Md. Qamruzzaman & Salma Karim, 2020. "Nexus between Economic Volatility, Trade Openness and FDI: An Application of ARDL, NARDL and Asymmetric Causality," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(7), pages 790-807, July.

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    More about this item

    Keywords

    Inward foreign direct investment (FDI); Economic growth; Chinese provinces; Vector auto-regression estimation; Granger causality and Impulse responses;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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