Foreign Investment and Economic Change in China

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Abstract
Foreign direct investment (FDI) in China is the most dramatic manifestation of China's open-door policy. Together with continuous import and export expansion, FDI has increasingly exposed the Chinese economy to the western world during the past decade. There are, however, several differences between FDI and foreign trade in terms of their implications for the domestic economy. The most obvious is that FDI directly helps to relieve domestic capital supply bottlenecks and to promote employment and economic growth. By contrast, increased capital formation through imports of machinery and equipment must be financed by extra export earnings.

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