The Chinese economy receives a lot of interest in the media but it can be difficult to keep track of the basic facts.
FDI flows fell steadily in the first half Economics china essay due to global slowdown. But have now started to recover. Almost all countries are seeking to attract FDI, because of the various amounts of benefits that it brings; which include income generation from capital inflows, advanced technology, management skills and market know-how.
FDI encourages local firms to improve their technological competence by generating knowledge or technological spillovers that increase factor productivity.
In recent years, foreign-invested firms have become a very important part of the Chinese economy.
It can generate more benefits than just helps solve the capital shortage problem. FDI may provide better access to technologies for the local economy It can also lead to indirect productivity gains through spillovers.
For instance, with the entry of multinational companies MNCscompetition increases in the local market which will force existing inefficient firms to invest more in physical or human capital.
Usually MNCs provide training for labour and management which makes them become available to the economy in general. In China, previous studies on FDI and spillovers have confirmed existence of a positive relationship.
However, the empirical findings on spillover are mixed. While some have proven a positive existence Hejazi and Safarian, ; Javorcik, ; Keller, ; Liu, Siler, Wang, and Wei,others have confirmed quite the opposite Aitken and Harrison, ; Konings, or found spillover effects to be confined to other multinationals Feinberg and Majumdar, The studies of Hermes and LensinkLensink and MorrisseyGorg and Strobl, respectively show that knowledge spillovers take place through four likely channels which include: Gorg and Hijzen also explains the positive effects that foreign firms have over local firms in export markets.
Foreign firms are mostly always technologically advanced and well organised compared to domestic firms. Domestic firms may find it cheaper to copy foreign firms by upgrading their technology for example, rather than generating new ideas or ways of doing things, therefore this process leads to domestic firms becoming more productive.
Since the effect on domestic firms is positive, it is imperative to understand that FDI brings about a positive technological spillover through the channel of imitation.
Accolley Delali confirms the existence of this linkage may force foreign firms to provide technical aid to domestic firms. Domestic firms become efficient because they driven by foreign firms to advance their technology and also train their staff, which increases productivity. Borensztein et al tested the impact of FDI on growth with respect to technology spillover which was labour augmented and found a positive impact between the two and concluded that the spillover effect centres on the presence of a threshold level of educated labour force.
These are positive impacts FDI leads to a fast increase in import and export trade in China. From tothe market share of China in the international trade has increased from 1.
FDI has created large number of job opportunities.This China Essay covers a lot of areas relating to economic growth and development. Aimed at addressing a case study question in the HSC.
A collection of macro-economic essays on topics Inflation, Economic growth, government borrowing, balance of payments. Evaluation and critical analysis of all latest issues of the current day. Jun 22, · The Chinese economy receives a lot of interest in the media but it can be difficult to keep track of the basic facts.
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