Utilization of Foreign Capital and Economic Growth in China

Zhang Tao

Chinese Economy, 2004, vol. 37, issue 1, 62-84

Abstract: Since China's open-door policy was initiated in late 1978, there has been rapid increase in the numbers of foreign investors and foreign capital flows to China. The growing trend of foreign investment has been magnified by the improvement of economic circumstances and market-oriented economic development. This paper first reviews the history of the general situation of utilizing foreign capital in China, and then analyzes the important role of the utilization of foreign capital on China's economy. We use cointegration analysis and an error correction model (ECM) to identify the contribution of foreign investment to China's economic growth, and point out the negative effects of using foreign capital, which have implications for China's economic policy.

Date: 2004
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