Does and How does FDI Promote the Economic Growth? Evidence from Dynamic Panel Data of Prefecture City in China

This paper employed GMM proposed in [1] to re-evaluate the effect of FDI on the economic growth in China and the relevant factor of FDI during the period 1994-2010,based on dynamic panel data from 254 prefecture-level cities in China. We found that FDI exert positive impact on the economic development. Furthermore, economies of scale, human capital, infrastructure level, wage levels, regional differences interact actively with FDI and promote economic growth in China, while the openness of trade does not induce FDI significantly. Especially it is likely that FDI has crowded out the domestic capital and leave the domestic capital and huge foreign exchange reserves with the problem of rational usage.