Foreign Direct Investment and its Role in Economic Development

Abstract China has experienced an outstanding economic growth after opening up its market to the world economy. At the same time, China has attracted large volumes of FDI and ranks among the major recipients of FDI. This paper aims at clarifying the role of FDI in the Chinese economy and identifies the effects of FDI contributing to China’s economic development. Preliminaries to the subject are initially presented, followed by general effects of FDI on host countries, before the case of China is evaluated in detail. The paper finds that China’s economy has benefited from FDI, particularly through the diffusion of technology and increased productivity, the stimulation of foreign trade as well as boosted economic growth. The establishment of special economic zones and the policy framework regarding FDI have contributed positively to the impact of FDI on China’s economic