The Effectiveness of China’s FDI Policies with Regard to Regional Development

Foreign direct investment is an essential instrument for governments from developing countries to accumulate capital and accelerate development. History has shown how China successfully used its policies in order to attract investments from abroad to become one of the top host countries in today’s global economy. But can the Chinese government, after three decades of economic transformation, guide and control foreign direct investments to the same extent as before? A panel data analysis over a period of 16 years (1997-2012) was established to investigate this issue at a provincial level. The regression model used in this thesis examines the effect of foreign direct investments on China’s GRP from different perspectives. In general, the estimated results suggest a significantly positive effect of foreign direct investments on GRP. This effect, however, is significantly lowered for Eastern and Central China if the time period is 2005-2012.