Empirical research on Relationship among Urbanization, FDI and Economic Growth: A Case of China from1999 to 2015

Abstract

In China’s rapid economic growth and significant increase in the process of urbanization, a large number of foreign direct investment may play an impeccable role. We establish a Vector Auto-Regressive (VAR) model and make empirical research by using foreign direct investment, the urbanization and economic growth of quarterly data in China from 1999 to 2015. Then we use the unit root test, cointegration test, error correction model and Granger causality test to analyze three factors, and use impulse response function diagrams to analyze the relationship among FDI, urbanization and economic growth. The empirical results show that there is a cointegration relationship among FDI, urbanization and GDP. FDI and economic growth are granger causality each other, urbanization is the granger cause of FDI. Meanwhile, economic growth is the granger cause of urbanization. In the long run, improve domestic infrastructure construction and absorb foreign capital into domestic capital market are helpful to drive China's economic growth. The influence of urbanization on foreign investment continues to rise, meaning that urban development has pull effect to foreign investment. The departments concerned should encourage entrance of foreign capital to provide appropriate for the convenience of various kinds of production factors. At the same time, government should improve national awareness to stimulate consumption of foreign capital. What is more, we should accelerate the speed of urbanization, increase the intensity of financial expenditure to urbanization and increase the domestic economy by introducing foreign capital and city development.