The Impact of FDI On Economic Growth: Evidence from Different Sectors and Economic Conditions
Abstract
The objective of this study is to examine how the foreign direct investment (FDI) influence China's economic expansion and evaluate its diverse role in various sectors and economic circumstances. This study uses multiple regression panel data Fixed Effects models with the robust standard errors to investigate further the potential significant impacts of both FDI inflows and outflows on economic development in China. The study employs panel data from 29 provinces in China, spanning the period from 2003 to 2021 for its analysis. This study found that FDI inflow contribute significantly and positively on growth in three different sectors, while outflow of FDI shows insignificant but positively correlated with growth. The results of coefficients reveal that FDI inflow in secondary sector has the strongest impact on growth, followed by primary and tertiary sector. Additionally, by including crisis in the models, the positive and significant impact of FDI inflow remain unchanged with the domestic investment became significantly and positively affect the economic growth. Hence, this study recommends the policy makers to promote and encourage more foreign investors to invest in China by giving some incentives such as reduction in capital gains taxes and more subsidies to the domestic firms especially in secondary sector.
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