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 6: The Relationship between FDI and Tourism

Sumei Tang, Eliyathamby A. Selvanathan and Saroja Selvanathan


6.1 INTRODUCTION Tourism is one of the most important industries in many countries around the world and is one of the main export services in a domestic economy. FDI plays an increasingly important role in the global economy and has an enormous impact on a domestic economy, and its tourism industry, in particular. Internationalization is a common character linking FDI and tourism but very few empirical studies have analysed whether and how they are linked. For example, the studies by Sanford and Dong (2000) and Tisdell and Wen (1991) discussed only the relationship between FDI and tourism without any econometric analysis. Studies by Dunning and McQueen (1981), Contractor and Kundo (1995) and Kundo and Contractor (1999) considered the impact of FDI invested in international hotels on tourism using a standard regression model. Further, regarding statistical techniques used in previous FDI and tourism studies, it is argued that they are insufficient and not adequate (for example, see Tisdell and Wen 1991; Sanford and Dong 2000). This chapter focuses on the empirical analysis of the relationship between FDI and tourism in China. China has been the largest FDI host country in the world since 2002. At the time China opened its economy to the outside world, FDI inflows increased dramatically from a very low level of US$0.16 billion in 1979 to the level of US$52.743 billion in 2002.1 FDI in China’s hotel industry increased from US$5 billion at the end of the 1980s to US$20 billion at the...

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