FDI and Economic Development in China: 1978-2008

Endeavors have been made in this paper to discern the long-run relations between FDI and economic development in China in the comprehensive framework, which incorporates determinants as output, FDI, capital formation, employment, human capital and international openness. VAR Impulse Response, Variance Decomposition, Johansen Co-integration and VECM have been estimated, focusing on the long-run structural relations; findings indicate that in the long run, FDI tends to decrease economic growth; economic development in China seems to be fueled by domestic capital accumulation and employment growth; FDI inflows do crowd out domestic capitals, and reduce employment growth, whilst the latter increases the former.