China’s remarkable growth in recent years has been often rather arbitrarily ascribed to a number of politico-economic factors. In this volume, the specific effect of foreign direct investment (FDI) inflows is measured quantitatively and estimated on a regional basis. The authors find that there is a much more complex relationship between such flows and growth overall than had hitherto been supposed. While growth associated with FDI flows and a consequent foreign technology input is clearly highest in the coastal, open provinces, geographical dispersion effects can also be identified. In order to avoid widening wealth inequalities, these dispersion effects should be encouraged.

Large differences, however, in physical and human capital terms, exist between provinces located on the coast and in the interior of the country and these hinder redistribution of the growth effects of FDI inflows on a national scale. In addition, if China is to continue to benefit substantially from technological progress, domestic research and development capacity will need to be expanded to offset diminishing returns from foreign technology transfers. This implies the adoption of policies designed to increase human capacity development through education and training on a national scale.