FDI spillover effects on China's economic development

Abstract

With the development of international division of labor, FDI already becomes an important way to economic globalization and development. In recent years, research on the affects of foreign investment to the economic development of China is becoming a popular issue. This paper sets up a three-sector endogenous growth model including human capital accumulation, domestic R&D investment and technology stockings brought by multinational enterprises, according to the economic data from provinces and cities in China between 2001 and 2010, based on Coe & Helpman's Model. Besides, the paper tries to take human capital stocking as an indicator of measuring domestic technology absorbing ability, and makes fixed-effect analysis using linear regression model, in order to clear the relationship between FDI spillover and the economic development in China. The results shows that FDI spillover has positive effect to the economic development in China, and that the effect will be more obvious if combined with absorbing ability. On the other sides, human capital accumulation and domestic R&D investment also are positive correlated with total output.