The interactive relationship between the level of technology in FDI and technical progress of the host country

Abstract

The important effect of foreign direct investment on the technical progress and economic development in the developing countries is self-evident, however, there are varying influences allowing for various technical levels. In recent years during the process of introducing FDI into developing countries, more and more attention is paid to the selection of the technical level of FDI introduced and the constant improvement of the technical entrance standard of FDI. On one hand, with higher technical level, FDI can make a higher technical spillover and play a relatively larger role in the technical progress of the host country. On the other hand, the technical progress of the host country will also affect the selective absorption of FDI in terms of technical level. This paper takes China as an example to carry out the empirical analysis, which is based on the analysis method of VAR model, on the relationship between the technical level of FDI in China and China's technical progress using the related data during 1985–2008. The test results show that: FDI with high technical level influences the technical progress in China significantly, but the conditions of Chinese current technical progress go against the improvement of FDI level in terms of technology. On the basis of the conclusion, some relevant policy suggestions are put forward in the last part of the paper.