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1、The determinants of Foreign Direct Investment in ChinaJia Ren, Eric PentecostEconomic Department, Loughborough UniversityAbstractAfter adopting the open door policy, China experienced a boom of inward foreign direct investment (FDI) by multinational corporations since 1980s. From an almost isolated
2、economy, China turned to be the largest recipient of FDI in the developing world. The former research papers concerning on determinants FDI inflow to China contribute the development of FDI to the high growing GDP and the huge population, which supplies not only a huge market, but also the exhaustle
3、ss and cheap labours for the production as well. However, in reality, there are more economic factors can take into account for the increasing the FDI inflows into China, such as taxes, exchange rates, infrastructure developments etc, from the empirical side, there are more models applied into Chine
4、se data of these variables. This paper is going to have a discussion on the determinant of foreign direct investment (FDI) into China. The long term effect will be observed. Twenty-three-year annual data from 1982 to 2004 are used in the regression analysis of the determinants of FDI stock in China.
5、 The results indicate that there is a significant effect of labour, GDP, trade, exchange rate and tax on the national and regional level FDI stock.Key words: Foreign Direct Investment (FDI), China1. IntroductionForeign direct investment (FDI) is defined as investment made to acquire lasting interest
6、 in enterprises operating outside of the economy of the investor. Foreign Direct Investment, United Nations Conference on Trade and Development The FDI relationship consists of a parent enterprise and at least one affiliate out of its home country. The parent firm imply the business strategies in pr
7、oduction, marketing, finance through its affiliates. After adopting the open door policy, China experienced a boom of inward foreign direct investment (FDI) by multinational corporations since 1980s. In the first period 1979-1983, FDI inflows into China were with limited amount. In the 1982, the inf
8、low FDI to China was 430 million of US dollars. 1983 the inflow come to 606 million of US dollars. The average annual inflow is 518 million. Table1: the average annual inflow in three periods (million US $)PeriodThe average annual inflow 1982-19835181984-19912693.251992-20064777.67Source: Statistics
9、 Bureau of ChinaFrom 1984, the inflow of FDI started to take off stably from the annual inflow of 1,256 million US dollar (1984) to 4366 million (1991). The annual growth rate from 1985 to 1990 keep positive with the range from 3% to 38%. The average annual inflow is 2,693 million US dollar. Since 1
10、992, the inflows of FDI into China accelerate. The annual inflow started from 11,156 (1992) million of US dollar to 87,286 million (2006). The annual growth rate keep positive during the third period except the rate in 1999 was 10.14%. Furthermore the rate in 1998 (0.45%) and 2000 (2.63%) was slight
11、 positive. This temporary delay may due to the influence from Asian financial crisis. However, from 2001, the inflow of FDI to China has recovered from the crisis with the annual growth rate of 11.77% and reached a new record of 47,052 million US dollar. In 2005, there is acceleration in the inflow
12、FDI with the 41.32% growth rate and drop to 86,071 million US dollar. The average annual inflow in this period was 47, 775million US dollar.Figure1. The FDI inflow to China 1983-2006 (million US $)Source: Statistics Bureau of ChinaFrom an almost isolated economy, China turned to be the largest recip
13、ient of FDI in the developing world. The FDI inflow to mainland China in 2006 was 69.47 billion US dollars, which was 18% of the developing countries and 5.32 % of the world. The accumulated FDI inflows to China until 2006, reached 293 billion US dollar, constituting over 9.27 % of total FDI into al
14、l developing countries, 2.44% of the world total FDI stocks (UNCTAD 2007). The former research papers concerning on determinants FDI inflow to China contribute the development of FDI to the high growing GDP and the huge population, which supplies not only a huge market, but also the exhaustless and
15、cheap labours for the production as well. However, in reality, there are more economic factors can take into account for the increasing the FDI inflows into China, such as taxes, exchange rates, infrastructure developments etc, from the empirical side, there are more models applied into Chinese data
16、 of these variables. 2. The determinants for the FDI inflowsFormer literatures have keenly discussed the different factors which may influence the multinationals investment to the foreign market. The variables include the local market demand, the distance between the home country and the host country, the amount of the local labour and capital endowment, the taxes levied, the exchan