Foreign Investment, Domestic Investment and Economic Growth in China: Does Foreign Investment Crowd in or Crowd out Domestic Investment?

Najid Ahmad (), Mouna Hdia (), Hong-Zhou Li (), Jianlin Wang () and Xian-Liang Tian ()
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Najid Ahmad: School of Business, Hunan University of Science and Technology
Mouna Hdia: University of Evry and EconomiX University of Evry
Hong-Zhou Li: Dongbei University of Finance and Economics
Jianlin Wang: Dongbei University of Finance and Economics
Xian-Liang Tian: Wenlan School of Business, Zhongnan University of Economics and Law

Economics Bulletin, 2018, vol. 38, issue 3, 1279-1291

Abstract: This study assesses the effects of foreign direct investment (FDI) on domestic investment and economic growth, in addition to the extent to which foreign investment either crowds in or crowds out domestic investment in China. Yearly data from 30 Chinese provinces for the period 2000–2014 has been used. Pedroni and Kao tests confirmed the existence of long-run relations. We found positive and significant effects of FDI and domestic investment on the economic growth of China using DOLS, FMOLS and GMM estimators; however, domestic investment made a higher contribution to the growth and development of the Chinese economy. As regards crowding in or crowding out, FMOLS showed a neutrality hypothesis, while DOLS and GMM demonstrated that FDI crowded out domestic investment. We conclude that the effects of FDI on domestic investment (in other words, on the economy) are not always favorable.

Keywords: Multinational enterprises; Economic growth; China; DOLS; Crowds out (search for similar items in EconPapers)
JEL-codes: O1 O2 (search for similar items in EconPapers)
Date: 2018-07-18
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Citations: View citations in EconPapers (4)

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