The Impact of FDI on Economic Growth : The Case of China

Abstract: The aim of this study is to investigate the impact of foreign direct investment (FDI) on economic growth in China during the period 1994-2003. The theoretical framework shows that FDI has a positive impact on economic growth because it serves as a channel through which new technology is transferred from one country to another and thereby it increases output and GDP in the recipient country. Previous researchers’ work on the subject has also been reviewed to be able to interpret the results. The research is based on secondary data for 30 different regions in China. The empirical results show a positive but insignificant effect of FDI as a fraction of GDP on the level of GDP when the regression model includes all 30 regions. When the four poorest regions that have almost no inflow FDI are excluded, the regression model continues to show a positive effect of FDI on the level of GDP and in addition, the result is statistically signifi-cant at the 6 % level.