The Comparative Empirical Analysis of China and India's Use of FDI and the Implications for China

Abstract

The economic developments of China and India, two largest developing countries in the world, have been very impressive recently, but FDI policies and real FDI inflows in two countries are different. This article compares the main factors that cause the great differences in using FDI between China and India by empirical methods. The empirical results indicate that the larger domestic market size and more friendly FDI strategies make China much more attractive than India. With the increasing wages in China, the cost oriented FDI would be greatly affected. As FDI inflows in India mainly go to the service departments, the impact would be smaller. China has lost its advantages in low cost industries, it should change its ways of using FDI.