Modelling foreign direct investment in China

This thesis consists of three empirical and one theoretical studies. While China has received an increasing amount of foreign direct investment (FDI) and become the second largest host country for FDI in recent years, the absence of comprehensive studies on FDI inflows into this country drives this research. In the first study, an econometric model is developed to analyse the economic, political, cultural and geographic determinants of both pledged and realised FDI in China. The results of this study suggest that China's relatively cheaper labour force, high degree of international integration with the outside world (represented by its exports and imports) and bilateral exchange rates are the important economic determinants of both pledged FDI and realised FDI in China. The second study analyses the regional distribution of both pledged and realised FDI within China. The econometric properties of the panel data set are examined using a standardised 't-bar' test. The empirical results indicate that provinces with higher level of international trade, lower wage rates, more R&D manpower, more preferential policies and closer ethnic links with overseas Chinese attract relatively more FDI. The third study constructs a dynamic equilibrium model to study the interactions among FDI, knowledge spillovers and long run economic growth in a developing country. The ideas of endogenous product cycles and trade-related international knowledge spillovers are modified and extended to FDI. The major conclusion is that, in the presence of FDI, economic growth is determined by the stock of human capital, the subjective discount rate and knowledge gap, while unskilled labour can not sustain growth. In the fourth study, the role of FDI in the growth process of the Chinese economy is investigated by using a panel of data for 27 provinces across China between 1986 and 1995. In addition to FDI, domestic R&D expenditure, international trade and human capital are added to the standard convergence regressions to control for different structural characteristics in each province. The empirical results support endogenous innovation growth theory in which regional per capita income can converge given technological diffusion, transfer and imitation.

On the solution of a class of capital investment problems

In this work the solution of a class of capital investment problems is considered within the framework of mathematical programming. Upon the basis of the net present value criterion, the problems in question are mainly characterized by the fact that the cost of capital is defined as a non-decreasing function of the investment requirements. Capital rationing and some cases of technological dependence are also included, this approach leading to zero-one non-linear programming problems, for which specifically designed solution procedures supported by a general branch and bound development are presented. In the context of both this development and the relevant mathematical properties of the previously mentioned zero-one programs, a generalized zero-one model is also discussed. Finally,a variant of the scheme, connected with the search sequencing of optimal solutions, is presented as an alternative in which reduced storage limitations are encountered.