Regional Heterogeneity of the Impact of FDI on China’s Marketization Process

Abstract

As the process of marketization gradually takes place in China after 1978’s initiation of the reform and opening-up policy, FDI which is attracted by China’s preferential policies has become the main driving force of Economic growth. This paper tries to identify the determinants of marketization from the perspective of FDI based on provincial panel data ranged from 2000 to 2017 in China. Two-way-fixed effect model shows that the relationship between FDI and Marketization Level existed huge regional heterogeneity in China. Specifically, Eastern regions with higher development showed a stronger relationship, while in less developed western regions, this relationship was less significant. We also explore the heterogeneity from the time periods. The results indicate that FDI’s positive effect on Eastern China’s marketization level was slowing down, while FDI’s positive effect on Western China’s marketization level was escalating.