Foreign Direct Investment and Unequal Regional Economic Growth in China

FPCY - for income indicated by:                           Y

DFPCY - for the growth rate in income indicated as:            GY

DFDFIPC - for the growth rate in the investment level indicated as: GI

MY - the unweighted annual mean of Y for all regions

MGY - the unweighted annual mean of GY for all regions

MGI - the unweighted annual mean of GI for all regions

DY = Y- MY - the deviation of Y from the all region annual mean

DGY = GY- MGY - the deviation of the GY from all region annual mean

DGI = GI - MGI - the deviation of GI from the all region annual mean

WDY - value of DY weighted with the region’s share of population

WDGY - value of DGY weighted with the region’s share of population

WDGI - value of DGI weighted with the region’s share of population

The last three (six) variables is the operationalization of the first 3 variables for the
model building.

Note that DY² is defined as DY*ABS(DY), which means that it is signed.

4. THE MODEL FOR INVESTMENT AND GROWTH

A given level of investment in equilibrium with a level of saving will decide the
equilibrium income of the economy considered. Economic growth is thus (e.g.)
decided by the change in the level of investment. Thus change in direct foreign
investments, DFI, gives a change in the equilibrium income - that is “growth”.

A number of the Chinese provinces function as ports for DFI, and resent themselves
as centers of growth when foreign direct investment rises. The economic growth in a
region due to the change in the DFI is spread to the neighboring regions, through the
economic interaction between them.

Out of 29 Chinese provinces (excl Tibet incl Hainan) only 6 provinces has 78.73% of
the total DFI in the period 1988-1996.

4.1 The Paradox of Unequal Direct Foreign Investments and Equal Growth in China

Growth towards greater regional equilibrium can now, simplified, be written in the
following way

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