Abstract
Present paper attempts to investigate the effect of FDI on economic growth of China and India. To take care ofthe issue of structural change in economy, time period of the study is taken to be 1993-2009. First of all we builtour modified growth model from basic growth model. The factors included in growth model were GDP, HumalCapital, Labor Force, FDI and Gross Capital Formation, among which GDP was dependent variable while restfour were independent variables. After running OLS (Ordinary Least Square) method of regression we foundthat 1% increase in FDI would result in 0.07% increase in GDP of China and 0.02% increase in GDP of India.We also found that China’s growth is more affected by FDI, than India’s growth. The study also providespossible reasons behind China’s great show of FDI and the lessons India should learn from China for betterutilization of FDI.
Highlights
Before any discussion can be started on foreign direct investment, it is important to define it for the benefit of readers and for creating common understanding
Present paper attempts to investigate the effect of Foreign direct investment (FDI) on economic growth of China and India
The factors included in growth model were GDP, Humal Capital, Labor Force, FDI and Gross Capital Formation, among which GDP was dependent variable while rest four were independent variables
Summary
Before any discussion can be started on foreign direct investment, it is important to define it for the benefit of readers and for creating common understanding. In the period 1970s, international trade grew more rapidly than FDI, and international trade was by far than most other important international economic activities This situation changed dramatically in the middle of the 1980s, when world FDI started to increase sharply. China and India, as the two largest developing countries in the world, have been both enjoying fast economic growth since the 1990s. China has established itself as the top recipient of foreign direct investment (FDI) among developing countries. Given this dichotomy in the economic status of these countries, it would be interesting to know what the effect of FDI on their growth is. Fifth part shows the findings of the tests applied and their discussion and at last sixth part ends our discussion by concluding the whole essence of the paper
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