Empirical Research on the Impact of Foreign Direct Investment on Industrial Structure Upgrading in China

鹿瑞靜

【Abstract】The advantages of using foreign investment to adjust industrial structure of host-country have been proved by successful facts and experiences of economic development in some emerging industrial countries and regions in Asia.This paper analyses influence channels of FDI on China's industrial structure upgrading，furthermore relationship between FDI and industrial structure is verified using time series data from empirical point of view.

【Key words】FDI； Industrial Structure； Industrial Structure Upgrading

Ⅰ. Influence Channel of FDI on Industrial Structure Upgrading

1. Capital Formation Effect：Introduction of foreign capital help host-country to make up the gap of savings and foreign exchange，improve investment level，promote optimization of capital stock，so as to promote upgrading of industrial structure，form effect of capital formation.

2. Technology Transfer and Spillover Effects：Core element of industrial structure optimization is technology.Foreign-invested firms provide advanced technology，management experience，high-quality labor，other factors of production.FDI improve industrial technology by technology transfer，and indirectly improve industrial technology by technology spillover effect.

3. Industry Association Effect：The development of a certain industry can promote other industries evolution，including backward and forward association.

4. Competition and Demonstration Effect：Characteristic of foreign capital firms entry to host-country's original equilibrium market shock is to increase market competition，force local enterprises to seek more effective technology in order to expand its market share.FDI may lead to host-country's dependence on foreign technology，which inhibit ability of independent innovation.

Ⅱ. Empirical Analysis of FDI in China's Industrial Structure Upgrading

1. Correlation Between FDI and Industrial Structure Upgrading

Data Source：China Statistical Yearbook

Output value of the three industry accounts for proportion of GDP to measure change of industrial structure.China's FDI stock as explanatory variable，proportion of GDP as explained variables.

2. Granger Causality Test on the Optimization of FDI and Industrial Structure

Use statistical data，test causal relationship between two variables：actual use of China's FDI amount and three industries accounted for proportion of GDP.（By Eviews software）

Effect of FDI on change of primary industry is very small.Lag period of 2 of FDI dont cause China's first industry proportion changes，its probability is 32.8%，so accept original assumption.FDI dont be affected by first industry，probability of impact is11.12%.They have a one-way causal relationship.According to theory of economic growth，the added value of China's first industry continues to decline，which means continuous optimization of industrial structure.FDI has significantly promoted development of second and third industries in China，and influence of third industry is more obvious.FDI dont cause China's Second Industry change，its probability is 3.5%.There is a bidirectional causality between FDI and change of proportion of added value for second industry in China.FDI dont cause China's Tertiary Industry，its probability is 10.94%.China's Tertiary Industry proportion changing and FDI is two-way causal relationship.Proportion of third industry is an important reason for change of FDI，especially after China's accession to WTO，third industry has become a new field of FDI.

References：

[1]Statistical yearbook of China，“China Statistical Yearbook”， China Statistics Press.

[2]Granger C W.J，Investigating Causal Relations by Econometric Models and Cross-Spectral Methods，Econometrics，1969.