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Inward FDI and Economic Growth: A Comparative Analysis of China Versus India

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The State of China’s State Capitalism

Abstract

What makes foreign direct investment (FDI) inflows more beneficial to economic growth in China than in most other developing countries? This chapter aims to shed light on this question by conducting an analytical review of the literature with a focus on comparing FDI’s estimated effect on growth in China versus that in India. Our literature review indicates FDI inflows have positively affected economic growth in both China and India, but that this positive impact was larger in China than in India. Our analysis suggests that there are two key reasons for this difference. First, China has better transportation and communication infrastructure, therefore better business efficiency. Second, China’s higher level of human capital means Chinese employees learn new technology and managerial know-how brought in by FDI more quickly, speeding up the spillover of technology and improving productivity rapidly in China.

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Notes

  1. 1.

    Typically, FDI refers to investment in a (host) country by a multinational firm, which has a home base in another country. Thus, FDI typically involves transferring of assets, such as capital stock, technology, and management know-how and human capital to the host country. See UNCTAD (2015).

  2. 2.

    For example, see Wang (2009).

  3. 3.

    This last point is consistent with the observation by Forte and Moura (2013): host countries’ governments are responsible for obtaining positive effects of FDI on their countries’ economic growth by improving their legal system and market conditions.

  4. 4.

    For example, Jadhav (2012) found empirical results showing that in BRICS economies, trade openness, rule of law and accountability were vital determinants of FDI.

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Authors and Affiliations

  1. International Business School Suzhou, Xi’an Jiaotong-Liverpool University, Suzhou, China

    Ma Yingxi & Juann H. Hung

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  1. Ma Yingxi
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  2. Juann H. Hung
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Correspondence to Juann H. Hung .

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Editors and Affiliations

  1. Xi’an Jiaotong-Liverpool University, Suzhou, Jiangsu, China

    Juann H. Hung

  2. Xi’an Jiaotong-Liverpool University, Suzhou, Jiangsu, China

    Yang Chen

Appendix

Appendix

1.1 Appendix 1: Global Competitiveness Index in 2008–2009

figure a

1.2 Appendix 2: Global Competitiveness Index in 2010–2011

figure b

1.3 Appendix 3: Global Competitiveness Index in 2014–2015

figure c

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Yingxi, M., Hung, J.H. (2018). Inward FDI and Economic Growth: A Comparative Analysis of China Versus India. In: Hung, J., Chen, Y. (eds) The State of China’s State Capitalism. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-13-0983-0_10

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  • DOI: https://doi.org/10.1007/978-981-13-0983-0_10

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