The impact of foreign direct investment on China's competitiveness

  • Ping Zheng

Student thesis: Doctoral Thesis


In the past few decades, the role of FDI in developed economies has been extensively studied. The impact of FDI inflows on host developing countries has also attracted increasing attention in recent years. However, the research on the effects of FDI on national competitiveness of host developing countries has been relatively neglected. This thesis aims to fill the gap in the literature by providing systematic and rigorous research, which focuses on whether and how FDI in flows have affected China’s competitiveness from both macroeconomic and microeconomic perspectives.

Using several panel data sets at provincial and industrial levels, the empirical analysis has been conducted on four research issues. First, the regional locational determinants of FDI in China are investigated. Second, the impact of FDI on China’s economic growth is tested. Third, the impact of FDI on China’s export performance is analysed. Finally, the impact of FDI on China’s industrial productivity is estimated.

There are a number of important findings from this study. First, FDI is the most important driving force for the remarkable economic growth of China at both national and regional levels. Second, FDI has a positive influence on total firms’ exports but relatively less effect on indigenous firms’ exports. Third, FDI plays a positive role in improving labour productivity in China’s automotive industry. In summary, FDI does enhance China’s competitiveness.

Based on the findings from the empirical analysis, this thesis draws a number of policy implications. Firstly, to further enhance China’s competitiveness, the Chinese government should keep its FDI policy coherent and stable and optimise the investment environment in order to support FDI in flows. Secondly, the government should endeavour to improve foreign investment structure while upgrading investment quality to help China’s industrial restructuring, technological upgrading, and state-owned enterprises’ reform. Thirdly, the linkages between the foreign and domestic sectors need to be improved. Fourthly, the government should encourage foreign investors to invest in the central and western regions to help China's western development strategy, which in turn serves China’s economic regional restructuring, eventually enhancing China’s competitiveness.
Date of AwardMay 2003
Original languageEnglish

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