A study of new industrialization and foreign direct investment (FDI) based on China’s East, Middle and West regions

Abstract

In recent years, China has made remarkable achievements in bringing in foreign investments. Not only foreign direct investment (FDI) made up for the insufficient construction funds in China, it also effectively promoted China’s process of new industrialization. This paper presents the situation of FDI and process of new industrialization in China’s east, middle and west regions from 1981 to 2009 and study the linkage between these two factors with co-integration theories. First, FDI has the biggest promotional effect on the process of new industrialization in the middle region, followed by the east region and the effect on the west region is the last. Second, the long-term equilibrium elasticity of FDI in the east region to the process of new industrialization is 0.3221, that in the middle region is 0.3863 and that in the west region is 0.1936. Third, there exists bilateral Granger cause between FDI and process of new industrialization in the middle region, while only significant unilateral Granger cause exists in the east and west regions. Key words: Foreign investments, industrialization, empirical study.