Macroceconomic Impact of Direct Foreign Investment in China 1979-93

Abstract

Direct foreign investment (DFI) has played an important role in the economic development of China in the past 15 years. It contributed to the Chinese domestic capital formulation and industrial growth, and promoted export expansion and employment creation. This paper provides an empirical investigation of the impact DFI on these macroeconomic variables of China. The regression analysis using pooled time-series and cross-section data shows that DFI positively affected the domestic capital formation and economic growth in the coastal region of China. In addition, DFI added a dynamic force to the industrial growth and exports of China. At the same time it created new employment. The Chinese experience in using DFI would be of valuable implications for other developing countries.