The Optimal Model of Regional Structure of Foreign Capital Allocation: A Simulation

The economic strategy for developing the western part of China, which is now being implemented, is designed to solve the problem of imbalanced development of regional economy. China, as the largest developing country, is in shortage of fund. Therefore, foreign investment is one of the most important sources of capital. However, what is the most important is how we should allocate foreign capitals among the eastern, the central and the western parts of China in a way in which benefits can be maximized in order to make more efficient and effective use of the foreign capital to develop regional economy in a balanced way and ultimately bridge the gap between the more advanced eastern part and the underdeveloped western part. The present study is designed to model the best pattern of foreign capital allocation by taking into consideration the economic backgrounds of these regions, and the resultant model is tested by means of Matlab6.0. The conclusions we have arrived at are as follows: the gap between the eastern region and the central region can be reduced to target value, but that between the eastern region and the western region cannot; consequently the author suggests that a policy concerning the use of foreign capital should be favorable to the western region and only in this way can the gap be reduced.