Empirical Study of Capital Allocation Efficiency Difference between Domestic Capital and FDI of Manufacturing Industry in China's Different Areas

Abstract

This paper analyzes capital allocation efficiency(CAE) of overall, domestic, and foreign capitals of manufacturing industry in China's different areas from March 2000 to August 2006 by Jeffrey Wurgler's thought and panel data model of overall and domestic data of 30 areas and foreign data of 29 areas, with a conclusion that CAE of foreign capital is obviously higher than that of domestic capital in 29 areas except 5 ones; CAE of domestic capital significantly differs from that of foreign capital in provinces with good industrial bases, large scales of the introduction of foreign capital and externally oriented economics. There are two reasons for the differences between CAE of domestic capital and that of foreign capital. The first one is that they have different characteristics. And the second one is that the governments provide subsidy to foreign capital and the reason why local governments provide subsidy to foreign capital is related with incentive mechanism of performance evaluation and political promotion under the competition of GDP in China. Accordingly, the policies and measures to reduce the differences between CEA of domestic and foreign capital are establishing uniform incentive mechanism.