Economic Growth in the Presence of FDI: The Perspective of Newly Industrialising Economies

GEP Research Paper No. 2006/33

50 Pages Posted: 20 Nov 2006

See all articles by Shujie Yao

Shujie Yao

University of Nottingham

Kailei Wei

Middlesex University - Business School

Date Written: 2006

Abstract

Although FDI is widely believed to have a positive effect on economic growth, the exact mechanism of how FDI impacts upon the development process of the newly industrialising economies is far from being well understood. This paper presents and tests two propositions on the role of FDI in economic growth from a newly industrialising economy's perspective. First, FDI is a mover of production efficiency because it helps reduce the gap between the actual level of production and a steady state production frontier. Second, FDI being embedded with advanced technologies and knowledge is a shifter of the host country's production frontier. Due to its dual role as a mover of production efficiency and a shifter of production frontier, FDI is a powerful driver of economic growth for a newly industrialising economy to catch up with the world's most advanced countries. China's economic success over the past decades provides an ideal example to test the hypotheses.

Keywords: FDI, economic growth, industrialisation, China

JEL Classification: F21, E23,D51,C23

Suggested Citation

Yao, Shujie and Wei, Kailei, Economic Growth in the Presence of FDI: The Perspective of Newly Industrialising Economies (2006). GEP Research Paper No. 2006/33, Available at SSRN: https://ssrn.com/abstract=944787 or http://dx.doi.org/10.2139/ssrn.944787

Shujie Yao (Contact Author)

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Kailei Wei

Middlesex University - Business School ( email )

The Burroughs
London, NW4 4BT
United Kingdom

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