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Why China Can Attract More Fdi: A Response To "Competitiveness In India And China: The Fdi Puzzle"

1896 words - 8 pages

Why China Can Attract More FDI:

A Response to "Competitiveness in India and China: the FDI puzzle"

In 2008, a serious financial crisis swept the globe, causing many countries' economies sunk in depression or recession. After four years, some emerging economies, such as China and India which are the members of the "BRICS" (the acronym of Brazil, Russia, India and China, which are at a similar stage of newly advanced economic development), firstly got rid of the effect of this financial crisis. Therefore, these emerging economies begin to draw more economists' attention. Prime, Subrahmanyam and Lin researched the competitiveness in India and China through the foreign direct investment (FDI). In " Competitiveness in India and China: the FDI puzzle", Prime, Subrahmanyam and Lin (2011) applied the Porter's diamond theory to illustrate, the FDI puzzle, why China can attract substantially more FDI, although China and India have many similar factors (pp. 303-333). Though I strongly agree with their research because my experience in China confirms it, I still insist that they didn't provide ample evidence to support the result of this research. After summarizing their research paper, I will supplement evidence into the result from three aspects: related and supporting industries, government, and chance.

To begin with, this research exposed a FDI puzzle between India and China through analyzing the current economic condition. Prime, Subrahmanyam and Lin (2011) stated, "Given their growth records, large markets, and reformed economic systems, both China and India appear to be equally likely candidates for foreign direct investment. Yet, China has received substantially more FDI" (p. 303).

What's more, Prime, Subrahmanyam and Lin cited other economists' research results, and found their advantages and shortages. Then, Prime, Subrahmanyam and Lin raised the Porter's diamond theory to illustrate this puzzle. There are a lot of researches which compare the Indian economic growth and transition with Chinese on various dimensions, but there are only a few studies that focus on FDI (Prime, Subrahmanyam and Lin, 2011, p. 303). In the passage, three economists (Wei, Zheng and Sinha) used data to explain the FDI flows of India and China. For example, Wei (2005) tested for possible factors which are crucial in explaining FDI flows. Zheng (2009) established India and China data sets to calculate the flows individually. Sinha (2007) selected data from 6 states in India and 3 sub-regions in China to estimate how the business climates influence FDI inflows (as cited in Prime, Subrahmanyam and Lin, 2011, pp. 304-305). Others cared about investment regimes, or focused on the differences in policies and performance in the two countries (Prime, Subrahmanyam and Lin, 2011, pp. 305-306).

Furthermore, Prime, Subrahmanyam and Lin selected the data to compare levels of FDI and FDI performance, and introduced the Porter's diamond theory...

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