Foreign Direct Investment and Unequal Regional Economic Growth in China

It is of cause the total growth rate in the neighbor region which through the multiplier
effect is transformed to the growth in the region considered. Therefore a model in the
form where GY₂ replace GI₂ and form the equation

GY1 = β00 + (β01 + β11Y1)GI1

+ βi0 (β01 + β11 Y1)GY2 + β3 DUM89
must be assumed to give a better fit. However, this article focus on DFI as the driving
force in the growth process.

5. THE CYCLICAL ATTRACTION OF INVESTMENTS

As mentioned above a group of regions will develop towards equality when the
growth rate is high for regions below the average income and low for regions above
the average income. Therefore it is an important question for the regional equality
whether it is the rich or the poor regions who attract most direct foreign investments.

It was argued above that the regional growth rate is a function of the change in
foreign direct investment.

The role of FDI in the development of income equality is therefore decided partly by
the individual region’s ability to attract an increasing amounts of investment.

As mentioned above as the first the regions Guangdong and Fujian opened three and
one SEZ’s. Because Hainan first was nominated as a SEZ in 1988 it is here calculated
as just a coastal area.

The basic model of attraction of additional investments after income level is for the
empirical estimation formed as

GI = o+ + b DY + γ2 SEZ

Where

SEZ - dummy, 3 for Guangdong, 1 for Fujian and 0 for others

DSEZ - deviation from average all region SEZ value

If the ability of attracting investments among the regions change over the years the
coefficient can change over the years after the pattern

GY = α₀ + a₁GI + a₂GI₂                             (26)

GI = γo + b DY + γ2SEZ                          (27)

a₁ = a₁₀ - a₁₁DY                                    (28)

«2 = β10 (ɑ 10 — a11DY)(«1o — <41DY2)                             (29)

10

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