FDI spillover channels on Chinese provincial economic growth

Abstract

China has been opened to the world over several years and make great success in economic growth. Most of the previous literatures have analyzed the determinants of economic growth and the effect of FDI on economic growth in China. However, seldom of them analyze the relationship of FDI and its spillover effect on economic growth through R&D and human capital channels using provincial data. The study employs provincial panel data during period 2006-2018 to estimate the relationship of FDI, FDI spillover from R&D and human capital, R&D, and human capital on economic growth under the consideration of Special economic Zone and Free Trade Zone in China.

The analysis suggests that FDI has a significant positive contribution on the growth rate of real GDP per capita in China. Therefore, government should maintain high inflow of FDI and make more preferential policies to attract FDI to invest in China. The result also shows that population growth rate would help promote economic growth. The government should keep the population growth rate to help stimulating growth. Moreover, the empirical result shows that current inflation is also a factor to foster economic growth. This study cannot prove the contribution of human capital, R&D and FDI spillover through human capital and R&D on growth rate due to lack of skilled labor in provincial data and the decline of R&D efficiency in China. The study suggests that more favorable policies and measures can be used to target FDI in industries with high technology. In addition, stimulating advanced R&D level and technological transfer could accelerate economic growth.