PRODUCTIVITY AND ECONOMIC GROWTH: AN EMPIRICAL ASSESSMENT OF THE CONTRIBUTION OF FDI TO THE CHINESE ECONOMY

Abstract

We estimate the contribution of FDI to the efficiency and productivity growth in a cross-region regression framework, utilising China¡¯s provincial data from 1984 to 1997. We find a bidirectional causal linkage between FDI and productivity growth across the regions in China, suggesting that changes in FDI intensity Granger-cause changes in productivity, and vice versa. China¡¯s economic growth is found largely due to the rapid expansion of investment in fixed assets. Human capital development becomes increasingly important to the labour productivity growth, and FDI has certain effects on labour productivity but not so strong and significant. Thus, the contribution of FDI to China¡¯s technological progress through technology transfer is still not noticeable, and many regions in China still experience inefficiency. This raised the concern over the issue of how to improve economic efficiency and technology transfer in order to sustain China¡¯s rapid growth in the long run. It also concerns what kinds of development strategy and industrial policy toward FDI that China is to form.China, Growth, Productivity, FDI, Human Capital