An Empirical Analysis of FDI, Human Capital and China’s Regional Economic Growth
Authors:   Asia-Europe Perspective Association, Lv Yaping , Song Jaehoon 
Published: December 2024

Since the reform and development, China’s economy has grown rapidly and the national income level has been continuously improved. This is closely related to China’s policy of reform and opening up, especially with the large-scale inflow of foreign direct investment under the reform and opening up policy. However, at the same time of rapid growth, China’s regional economic imbalance has become increasingly serious. Due to factors such as policy, market, location, labor force and clustering effects, the scale of FDI use in eastern, central and western China is also significantly different.Since China’s reform and opening up, FDI has flowed into coastal areas in large quantities, which has promoted the rapid development of the economy in the eastern region. However, it is also an indisputable fact that the regional economic development gap has been widened. Coupled with the sloping FDI regional preferential policy arrangement, it has led to the growing economic growth gap between the east and the west and the increasingly uneven regional economic development. These problems will inevitably affect the long-term development and virtuous circle of the Chinese economy.
Therefore, under the strategy of “Western Development” and “Rise of Central China”, rational and effective use of foreign direct investment can promote the growth of the central and western economy and narrow the regional economic development gap. Studying the differences and contributions of foreign direct investment to China’s regional economy has certain theoretical and practical significance.
First of all, FDI and economic growth have always been hot issues for scholars in macroeconomic research. However, FDI research started in developed countries. Most of the theories about FDI are analyzed from the perspective of the investment home country. The research on the relationship between FDI and economic growth in developing countries is relatively rare. And the research angles are qualitatively researching the status quo of FDI regional differences, the causes of formation, the mechanism of impact on economic growth, and solutions. Moreover, the role of foreign direct investment in economic growth in different regions has also changed due to differences in macro environment and policies. Therefore, studying FDI has far-reaching theoretical significance for China’s economic growth.China’s research on FDI originated in the 1990s, most of them study the relationship between FDI and economic growth through two perspectives. First, under the framework of the neoclassical economic growth theory, the role of FDI as a form of capital in China’s economy is studied. Second, the role of FDI in economic growth through technological spillovers is studied under the framework of the new growth economic theory. Based on the new growth theory, this paper sorts out nearly 10,000 data from 1998 to 2016. Through data analysis and empirical analysis, it provides case experience for FDI and economic growth theory in developing countries, which is beneficial to further research on FDI and economy.
Secondly, this paper studies the relationship between FDI, human capital and China’s regional economic growth. It is not only a summary of the use of foreign direct investment in the past 30 years, but also an exploration of the rational use of foreign direct investment in the future. Rational use of foreign investment, with the goal of narrowing regional disparities and promoting balanced development of the regional economy, strive to maximize the role of foreign direct investment in promoting the economy.
Based on these research implications, we use the cobb-dauglas production function as a theoretical model to study the relationship between foreign direct investment, domestic investment, human capital and China’s economic growth using panel data from 30 provinces and cities in China from 1998 to 2016.