Assessing the Role of Foreign Direct Investment in Chinaâ€™s Economic Development: Macro Indicators and Insights from Sectoral-Regional Analyses
The objective of this paper is to assess the role of FDI in Chinaâ€™s economic development with reference to the broader literature on FDI and late development. Three main findings come out from the analyses in the paper. First, it is found that FDI tends to promote the improvement in allocative efficiency, while having a negative impact on productive efficiency. Second, insofar as FDI does promote overall productivity growth, this tends to be a matter of cumulative causation rather than one of single-direction causation. Third, in the context of a comparative analysis of two distinctive regional models, it is found that the economic impact of FDI tends to be more favourable in the inward-looking, capital-deepening pattern of development (the â€˜Shanghai modelâ€™) than that in the export-oriented, labour-intensive pattern (the â€˜Guangdong modelâ€™). Further analyses, however, suggest that the â€˜Shanghai modelâ€™ has its intrinsic problems of sustainability. The scope for applying it to China as a whole is thus judged to be limited.
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