Foreign Direct Investment and Economic Growth in Chinese Special Economic Zones: Panel Evidence from 1996-2017

Both foreign direct investment (FD) and special economic zones (SEZs) lie at the heart of the Chinese economic growth project. Research on this topic has largely debated the bidirectional causal relationship between FDI inflows and growth or described the mixed effects of FDI on economic and social development, both at the national level. However the link between inbound FDI and SEZ economic growth itself has bee ignored. Using an original panel dataset covering 19 Chinese SEZs (and SEZ-like zones) over 1996-2017, we explore the link between FDI and regional economic growth using a series of econometric models. We also examine the impact of the 2008 financial crisis on this relationship. Our results indicate a significant positive effect of inbound FDI on economic growth in SEZs. Following the 2008 crisis, the effect of FDI inflows on economic growth was reduced, pointing to the possibility of a lasting reduction in the relationship between the two as a result of the crisis. Finally, we identify the implications of our results for promoting sustainable economic development in SEZs, as well as potential points for reform in Chinese FDI policies more broadly.