FDI Spillover Effects in China

FDI Spillover Effects in China

Since the reform and opening up of China, it has achieved great economic development. Accompanying the rapid growth of its economy, the flow of foreign direct investment (FDI) into China also increased greatly, a consequence that contributed much to the economic changes. Many studies have attempted to determine and explain the spillover effect of FDI in China. This paper aims to conduct an empirical analysis to determine the effects of FDI at the level of Chinese sub-cities. Three dependent variables were used - gross domestic product (GDP), industrial output, and industrial sales. FDI showed significant positive effects on the three dependent variables. The utilized FDI was used to measure the presence of FDI, and it played a significant positive role on economic growth at a sub-city level in China. Regarding the internal factors affecting the spillover effect, besides the often used variables such as employment, labor quality, and fixed assets, the not-often-used variable infrastructure was also examined. A significant effect of infrastructure was found only on the dependent variable GDP, and no effect was found on the dependent variables INDOUT and SALE.