A Simultaneous Equation Model of Economic Growth, FDI and Government Policy in China

J L Ford, S Sen and Hongxu Wei

Discussion Papers from Department of Economics, University of Birmingham

Abstract: Empirical investigations aimed at determining what relationship, if any, exists between FDI and economic growth has drawn ambiguous results. This is also the case for China, where all empirical studies have used the VAR methodology. In this study we outline a dynamic simultaneous equations model. The model captures the interrelationships between, aggregate output, domestic capital, FDI, human capital, and the state of technological development. As well as broadening the formulation of the production function, the model is defined to include possible influences from government capital expenditure on the infrastructure. Structural equations are then developed to determine those variables, and further factors are introduced into the model thereby, such as saving and wealth, and other exogenuous policy variables. The latter embrace monetary, commerical and fiscal policy. Two of the potential influences on the system, and hence upon economic development, are financial liberalisation and the general opening-up of the Chinese economy, since 1979. The dynamic multipliers from the estimated model indicate, amongst other things, that the general set of economic reforms has beneficial impact on long-run economic growth, directly and indirectly by its enhancement of FDI.

Keywords: Economic growth factors; FDI; spill-over effects of FDI; monetary policy; commercial policy; fiscal policy; "opening out" reforms; GMM estimates; multipliers (search for similar items in EconPapers)
JEL-codes: F23 O23 O24 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2010-07
New Economics Papers: this item is included in nep-dev, nep-fdg and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bir:birmec:10-25

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