Privatization, FDI inflow and economic growth: evidence from China's provinces, 1978–2008

Abstract

China's economic growth over 1978–2008 is a miracle. This article attempts to figure out and quantify the factors leading to this miracle. It is generally believed that economic reform and opening up is the key to China's economic success, but that is far from being exact and specific. This study hypothesizes that privatization and Foreign Direct Investment (FDI) inflow are the two key factors in this process. We focus on identifying the exact, specific and detailed mechanisms of privatization and FDI inflow in promoting economic growth, especially from the provincial level. Then using a panel data covering 31 provinces of Chinese mainland over 1978–2008, we find statistically significant evidence to support our hypotheses. We predict that further economic growth depends on further privatization and opening up, that is, depends on denationalization of the economy.

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