Spillover Effects of FDI Inflows on the Banking Industry in China

The study examines the magnitude of economic spillover and the impact of foreign direct investment (FDI) inflow on the efficiency of the bank management in China This study examines direct and indirect spillover in the short-run and their economic spillover in the long-run. Unit root tests, cointegration tests, vector error correction models, and Wald tests are employed in the empirical analysis using monthly time series data from January 2002 to September 2013 retrieved from the Bank of China database. In testing long-run economic spillover, this study finds that FDI inflows have a significant economic spillover, but the spillover is likely to be negative. In testing short-run economic spillover, this research finds that FDI inflows have a significant positive direct effect on the efficiency of the bank management in Chain.