Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/63416
Authors: 
Tang, Sumei
Selvanathan, E. A.
Selvanathan, S.
Year of Publication: 
2008
Series/Report no.: 
Research Paper, UNU-WIDER, United Nations University (UNU) 2008/19
Abstract: 
In this paper, we investigate the causal link between foreign direct investment (FDI), domestic investment and economic growth in China for the period 1988-2003. Towards this purpose, a multivariate VAR system with error correction model (ECM) and the innovation accounting (variance decomposition and impulse response function analysis) techniques are used. The results show that while there is a bi-directional causality between domestic investment and economic growth, there is only a single-directional causality from FDI to domestic investment and to economic growth. Rather than crowding out domestic investment, FDI is found to be complementary with domestic investment. Thus, FDI has not only assisted in overcoming shortage of capital, it has also stimulated economic growth through complementing domestic investment in China.
Subjects: 
foreign direct investment
domestic investment
economic growth
multivariate VAR system
error correction model
JEL: 
C32
F21
O1
ISBN: 
978-92-9230-063-0
Document Type: 
Working Paper

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