The Relationship of Foreign Direct Investment and Economic Growth of China in Post-financial Crisis Era

Due to the reform and opening policy, China has experienced a period of high economic growth, in which the fast development of Foreign Direct Investment (FDI) has played an important role. This paper conducts an analysis of the impacts of FDI on the Chinese economic development with the VAR model and the methods of Co-integration Test, and the Impulse Response Function. To make a comparison, analyses of the impacts of Private Domestic Investment (PRDI) on the Chinese economic growth and the interactive relationship between the three factors has also been considered. The empirical study shows that there is a positive relationship between the 3 factors in short term. However, PRDI has negative impacts on FDI in the long term. Thus, in this post financial crisis era, where FDI has a sharp worldwide decrease, it would be essential to activate PRDI as well as attract high qualified FDI, to ensure the continuous Chinese economic growth.