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Abstract
This paper offers theoretical principles of gains from foreign direct investment (FDI) activities for an economy and tests the role of FDI in Chinese and Indian economic growth. It not only points out how FDI lowers the saving shortage in a developing economy, but also offers the mechanism in which in recent years China has been more successful in attracting FDI than India. There are some lessons to be learned for any economy in general and for India in particular, to use the Chinese model of making FDI more attractive. We compare the flows of FDI over the years in China and India.
Paper is organized in the following terms: After initial introduction, Section 1 summarizes the theoretical principles guiding the importance of FDI for an economy. It also carries out the relevant literature survey. It is noted that a voluminous research has already taken place on this topic, which is a manifestation of the topic's importance to the researchers. Section 2 reports the data of recent years of FDI activities in India and China. It also surveys the avenues used by these two economies to mobilize the foreign saving. Section 3 carries out the summary and makes some conclusions.
Keywords: Chinese Economy, Indian Economy, Incresed liberalization Capital formation
In recent years the gap between FDI movement to Chinese economy and Indian economy has become smaller, but the gap is still pretty wide with China attracting FDI of 55 billion per year while India is struggling to have about $20 billion. With GDP of $17.4 trillion (in purchasing power terms) China has overtaken USA's GDP (of $17.4) in December 2014. This has made China as the largest GDP producing country. This astonishing growth is made possible by double digit growth rates from 1990 onwards. World Bank data indicate that China's GDP grew by 10.6 percent from 1990 to 2000 and by 9.6% from 2000 to 2010. Some of the reasons for this tremendous increase have been the increased liberalization, freer markets, freer trade, higher labor productivity, efficient use of resources, and also the role of foreign direct investment. In this paper we shall focus on the freer movement of financial capital that China allowed in last 30 years. On the other hand...