Research on early warning system for foreign capital utilization risk

Abstract

Purpose

The purpose of this paper is to research the impact of foreign direct investment (FDI) on China's economic growth, so as to measure reasonable scales of FDI and the safe coefficient of China's FDI utilization, make timely predictions, and suggest specific foreign capital management and controlling strategies for the policy makers to adopt under various conditions.

Design/methodology/approach

This paper builds early warning systems (EWSs)for China's FDI utilization, applies grey correlation model GM (1,1) to predict early warning indexes, and uses both of the grey correlation and analytic hierarchy process (AHP) to evaluate the weights of the indexes.

Findings

The paper finds that FDI can promote China's economic growth, make great contribution to the technology spillover and improve China's employment environment as well as the quality of employment. But its contribution is less than the domestic capital in the aspects of China's industrial structure, area structure and trade structure adjustment, and more seriously, FDI exacerbates the imbalance of the area distribution in China. Moreover, foreign capital focuses on the occupation and monopoly of the domestic market, which will reduce import and export trade and harm the development of China's economy.

Research limitations/implications

Owing to data constraints, this paper is not detailed and comprehensive enough, and needs further exploration in the empirical work.

Practical implications

Given the strong evidence of the EWS for FDI utilization, this paper finds a precise way to evaluate the influence of FDI on China's economic growth, by which the government can implement different capital management and controlling strategies to smooth the openness process of FDI in China.

Originality/value

This paper applies EWS into the FDI utilization to evaluate the safe coefficient and achieve the warning indexes, which are evaluated by the combination of the grey correlation and AHP.

Citation

Lu, Y., Li, D. and Wang, W. (2009), "Research on early warning system for foreign capital utilization risk", Journal of Chinese Economic and Foreign Trade Studies, Vol. 2 No. 1, pp. 62-75. https://doi.org/10.1108/17544400910934351