dissertation topics economics   Impact of FDI on Chinese Economy

1. BACKGROUND OF THE STUDY:

Investment has been regarded as the backbone of all the growth theories in different aspects of economics.  In the developing countries which depict low savings rate, Foreign Direct Investment forms the basis of the most important foundation of capital accumulation which can augment the economic growth and development within emerging countries. The emerging economies can be described as those countries that have the characteristics of developed markets but do not meet the requirements of the developed market. China in this regard is one of the largest emerging economies. China ranks second in terms of FDI after USA. China has opened up its economy over the past 30 years which has attracted overseas investment in the form of Foreign Direct Investment (FDI). The main reasons behind the attractiveness of Chinese market for the foreign investors are the cheap labour, cheap land, incentives of the government and the vast domestic market. Different foreign firms have established a substantial presence in the Chinese market of which McDonald’s was one of the first firm that was established in Shenzhen which gradually expanded in China. Other foreign firms include the dominant position of Coca-Cola, Pepsi, Nokia, Motorola, supermarkets like Walmart and Metro, all of which has significantly increased the FDI inflow in China. The main focus of the study is to evaluate the effect of the FDI on the economy of China. 

2. AIMS AND OBJECTIVES OF THE RESEARCH:

The aim of the current research is the evaluation of the impact and consequences of the FDI on the Chinese Economy with reference to the domestic investment. The aim will be achieved using the following objectives:

  • To determine the drivers and the determinants of the FDI in China using the data of ten years.
  • To investigate the impact of the FDI on the Chinese economy
  • To analyze the displacement effect of the FDI inflows on the Chinese domestics investment. 

3. RESEARCH HYPOTHESIS:

Based on the above discussion three hypotheses are required to be tested in this research.

Null Hypothesis 1: FDI positively affect the economic growth in China.

Alternative Hypothesis 1: FDI does not affect the economic growth in China.

Null Hypothesis 2: Employment generally declines with the increase in the FDI in a particular sector.

Alternative Hypothesis 2: Employment is not affected by the increase in the FDI in a particular sector.

Null Hypothesis 3: High state ownership degree in a sector will attract low FDI.

Alternative Hypothesis 3: High state ownership degree in a sector does not attract FDI.

The above three hypotheses will be tested as against the alternative hypotheses which will help to analyze the impact, consequences and effect of FDI in China. 

4. LITERATURE REVIEW:

There has been substantial research on the role of FDI on the economic growth of any country but little has been talked about the consequences of the FDI. This study aims to explain the impacts and effects of the FDI flow in China. Nicole and Sandra (2006) had evaluated the growth performance of the Chinese cities by using the data from 1990to 2002 and the research revealed that there was positive growth due to the FDI in the respective cities. A statistical model building using the method of ordinary least squares where commenced by Mpanju (2012) where the study was based on the relationship between the employment and the FDI in Tanzania. The results of the study showed that there was a strong relationship between the employment and the FDI which was proved to be positive. Wang and Li (2004) on the other hand had tried to quantify the effects of the FDI on the domestic investment by estimating sample panel data. He results of analysis revealed that there was no significant displacement effects on China as country but there was significant crowding out effect in eastern China, crowding in effect in mid-China and no effect in the western parts of China. 

5. RESEARCH METHODOLOGY:

The research of this study is based on two approaches which are the empirical approach and the secondary data analysis. A regression analysis has been commenced with the data which is collected from the secondary sources from the published reports of RBI. World Bank, IMF etc. The dependent variable is the economic growth in China which is measured by the GDP of the country for the year 2004-2014 which is regressed against the data related to the FDI inflows in China. The employment data of China and the FDI inflows have been analyzed through the linear correlation analysis. The second approach of the methodology is based on the facts and findings. In this regard, the effects of the FDI on the Chinese economy is evaluated using the secondary data, books, magazines, papers published in the databanks, Government of China’s statistics center and other relevant data and information from scientific research institutes like the China Statistics Yearbook and the data from the World Bank. 

6. REFERENCES:

WHALLEY, J. and XIN, X. (2010). China's FDI and non-FDI economies and the sustainability of future high Chinese growth. China Economic Review, 21(1), pp.123-135.

Yalta, A. (2013). Revisiting the FDI-led growth Hypothesis: The case of China. Economic Modelling, 31, pp.335-343.

Yalta, A. (2013). Revisiting the FDI-led growth Hypothesis: The case of China. Economic Modelling, 31, pp.335-343.

Zhao, C. and Du, J. (2007). Causality Between FDI and Economic Growth in China. Chinese Economy, 40(6), pp.68-82.