China’s Economic Miracle
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China’s Economic Miracle

Does FDI Matter?

Sumei Tang, Eliyathamby A. Selvanathan and Saroja Selvanathan

This insightful book analyses the impact of Foreign Direct Investment (FDI) in China as well as making valuable contributions to the theory of FDI more broadly. The authors provide empirical analysis of key factors including the location-specific determinants of FDI; the impact of FDI on domestic investment, income distribution, consumption and tourism; the relationship between FDI inflows and income inequality; causality between FDI, domestic investment and economic growth; and causality between FDI and tourism. The study concludes that FDI plays a crucial and positive role in the economic development of China. Rather than crowding out domestic investment, FDI is found to stimulate economic growth by complementing it.
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Chapter 10: FDI and its Overall Impact in China

Sumei Tang, Eliyathamby A. Selvanathan and Saroja Selvanathan


10.1 INTRODUCTION This final chapter presents a summary of the book by discussing 1. the methodology of the research used in the book (Section 10.2); 2. the principal findings of the book, the overall impact of FDI on China’s economic growth and policy implications (Section 10.3); and 3. the limitations of the research and opportunities for further research (Section 10.4). 10.2 THE METHODOLOGY This book presents an extensive applied econometric time series study of FDI and its impact on China, in which multivariate time series models including the VAR model and ECM have been utilized. In addition, various statistical techniques such as unit root tests, Granger causality, cointegration, impulse response analysis and variance decompositions are frequently used in the empirical analysis of the book. Using the historical time series data of China, these methodologies and techniques are utilized for carrying out quantitative analyses on the determinants of FDI and the impact of FDI in China for the post economic reform period of 1978 to 2005. The majority of time series data used in this study were compiled or computed from published data of the National Bureau of Statistics of China, the Ministry of Commerce of China and China National Tourist Office.1 It is well understood, by researchers who work on research projects which involve Chinese data, that the quality of most Chinese official statistics varies. To minimize the effects of trend distortions, missing data and irregular effects, a preliminary data analysis and cross-check were conducted wherever possible to ensure data...

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