The Influence of Business Environment on the Relationship between FDI and Economic Growth in China

Abstract

China’s growth and the significant increase in foreign direct investment (FDI) inflows have been evident over the past three decades. However, the growth rate of FDI has recently slowed down due to various factors. With the goal of stimulating FDI inflows, China has proposed a policy of “optimising the business environment”. Addressing this phenomenon, the current study examined the relationship of FDI, business environment, and economic growth in China based on the retrieved annual data between 1986 and 2020. The bounds test for cointegration was performed to determine the existence of a long-term relationship involving these variables. The obtained results revealed the positive influence of FDI and business environment on China’s economic growth. More importantly, the study found that a good business environment can enhance the positive influence of FDI on economic growth. Therefore, efforts to improve the business environment and attract FDI inflows are conducive to China’s economic growth.