Sample Masters Accounting Dissertation Proposal

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Analysing the factors affecting FDI in China and how it impacts the economic development of the country.

Aim and objectives

The major aim of the study is to determine major factors that affect FDI in China and the impact on the country’s economic development. This aim is to be achieved through the following objectives;

  • Conceptualization of Foreign Direct Investment (FDI)
  • To understand FDI policies in China, including FDI forms and evolution of FDI policies in China
  • To determine factors affecting FDI in China
  • To depict how FDI has affected economic growth in China
  • To provide recommendations based on the findings of the study.

Theoretical basis

According to Amiti and Javorcik (2008, p.131), there have been remarkable changes in the Chinese economy over the recent 30 years as Open-up and Reform Policy was announced in 1978. The year after which the Chinese economy is continually growing at a fast pace and has opened markets to international investment, and has achieved success in attracting FDI in the past 30 years.

It was almost negligible until 1978 and increased to $95 billion in 2008 when around 434,937 international corporations got registered in China.

The impact of FDI on the economy is remarkable; in Shenzhen, the first MacDonald’s was established in 1990, after which around 1000 restaurants were opened within 20 years.

Apart from this, other examples are dominant positions of Apple, Nokia, and Motorola in the cellular phone market, Pepsi, Coca Cola, in the soft drink market, further, most popular three supermarkets are also foreign, i.e., Walmart, Metro, and Carrefour. The growth of these companies within the Chinese market is proof that China is an economy worth investing in.

Several factors help investors get higher returns on their investment in China. Fan et al. (2009, p.858) stated that the factors include fast growth of the economy, large population, government incentives, membership of World Trade Organization, attractive return, and low labor cost. These factors are an attraction for foreign investors to invest in China rather than any other country.

According to Agrawal and Khan (2011, p.71), market size is the most important factor that affects the decision of an investor to invest in a market. The growth of the Chinese market is a major plus point why investors are willing to invest in the market, and they are getting high returns as their businesses are being successful in the market.

This factor is somehow associated with another factor, i.e., a large population. The growth of international firms in China is also due to a large population that needs more and more products and varieties to be consumed daily.

Market growth is related to the population within the country because consumers are the reason for the growth of a market. Tang and Selvanathan (2008, p.1298) stated that in a market where the population is large, more consumers consume products and services, providing more revenue to the company.

Multinational corporations around the World are continuously in search of growing economies where they can expand their operations are benefiting from a growing economy.

Additionally, multinational corporations are a major source of FDI inflow. In China, there are a number of Multinational Organizations operating successfully.

The success of these organizations proves that the market is growing rapidly, and organizations are finding the Chinese market as an attraction for investment. FDI inflow in china is resource seeking because there is the availability of cheap labor.

FDI inflow and wage rate have a negative relationship because multinational corporations look for cheap labor to reduce their cost for sales. However, the impact of the wage rate on FDI flow is dependent on labor skills.

It is studied by Fu (2008, p.92) that a more skilled labor force attracts more FDI in a country and shows the positive effect of labor cost on FDI inflow. Yu and Walsh (2010) stated that Labour and material cost is the major cost an organization incurs; therefore, the most important concern for multinational organizations is the cost of material and labor according to which investment decision is made.

Furthermore, China’s membership with World Trade Organization (WTO) provides great opportunities to the country, and therefore, corporations around the World get attracted to such opportunities. Members of WTO enjoy significant economic terms because it regulates trade among countries around the World as it stimulates economic growth through trade.

Rosen and Hanemann (2009) stated that China is a WTO member, and this membership attracts multinational organizations to invest in China because of better trade opportunities and growth. Governments of WTO member states are shielded from lobbying and provide greater incentives for traders and service providers.

These incentives are also a factor to influence FDI inflow in China; corporations look for these incentives because these incentives help them a lot, while in other countries, they face restrictions, barriers, and policies for multinational organizations to limit their operations in the country. However, the Chinese economy and Government encourage investors to invest in their country with a vision to grow.

Furthermore, in China, foreign enterprises get greater returns on their investments. It may be due to the large population, which makes it difficult for local corporations to fulfill their demands.

A good return is the major purpose of investors to invest either locally or internationally; every investor will get attracted to the country or market where it sees an opportunity for higher returns. China is a growing country providing great opportunities for greater returns and growth to all businesses.

Moving forward to the relationship and impact of FDI on economic growth in China, it was found by Liang (2008) that FDI has positively impacted the economic growth of China in the past.

However, Whalley and Xian (2010, p.128) stated that after the financial crisis of 2007-08, FDI policies had been changed, and its impact may have resulted in different relationships between FDI and economic growth.

Azman-Saini and Ahmad (2010, p.212) also stated that FDI is directly related to economic growth in China because there are factors motivating investors to invest more in China.

Further, many studies, including the study of Kok and Acikgoz Ersoy (2009, p.110), have studied the impact of FDI on the economic growth of developing countries.

It was found that it positively affects the economic growth or development of a country. This research is subject to determine major factors to influence FDI in China and how FDI affects economic growth in China. The research will be conducted considering all major factors important in the Chinese economy due to which FDI inflow is affected.

Research methodology

For this research, secondary data will be used through research and articles about the Chinese economy and FDI in China and the relationship between both. Secondary data will help the researcher to extract data and information on Chinese FDI and economic growth.

According to Saunders (2011), secondary data is the data that has been extracted in the past and used in the past by previous researchers and will now be included in current research to include its findings and interpretations to reach a conclusion and provide recommendations accordingly.

Multiple research will be studied, and results will be included to analyze all research’s core ideas. These findings will then be analyzed using content analysis which extracts the meaning within literature (Mackey and Gass, 2015).

The method is said to be qualitative because results will not be numeric but in the form of opinions of these researchers after their research (Bryman and Bell, 2015). Secondary data will be extracted from genuine and reliable sources.

There is no inaccurate information regarding FDI in China, factors affecting FDI in China, and economic growth affected by FDI in China.

The researcher will follow few ethical guidelines to make the study more reliable, such as avoiding plagiarism and giving credit to the researchers, authors, or analysts for their work included in the study.

The researcher has used his professional judgment and objectivity while deciding for research methods so that the research method suits the topic of the study.

Research plan

In this section, the practical feasibility of the research has been included with the timetable for each activity including proposal, literature review, methodology and analysis.

Research plan will be followed strictly so that there is no delay in completion of this dissertation. Proposal of the dissertation has been completed on 28th of May, 2018 which will be followed by completion of literature review of the study including various past studies associated with FDI in China, factors affecting FDI in China and impact of FDI in economic growth of China, this literature will be completed by the end of June 2018.

Completion of literature review will be followed by methodology and interpretation of results by the end of July 2018. Methodology will include detailed methods followed for the dissertation which researcher thinks appropriate and suitable for the topic.

At the same time, analysis of results will extract final results provided by all the studies included in literature.

Following is the table showing dates for all the work to be done;

Time Table

Particulars Date
Dissertation proposal 28th May, 2018
Literature review 30th June, 2018
Methodology and results 31st July, 2018

References

Agrawal, G. and Khan, M.A., 2011. Impact of FDI on GDP: A comparative study of China and India. International Journal of Business and Management6(10), p.71.

Amiti, M. and Javorcik, B.S., 2008. Trade costs and location of foreign firms in China. Journal of development economics85(1-2), pp.129-149.

Azman-Saini, W.N.W., Law, S.H. and Ahmad, A.H., 2010. FDI and economic growth: New evidence on the role of financial markets. Economics letters107(2), pp.211-213.

Bryman, A. and Bell, E., 2015. Business research methods. Oxford University Press, USA.

Fan, J.P., Morck, R., Xu, L.C. and Yeung, B., 2009. Institutions and foreign direct investment: China versus the rest of the World. World development37(4), pp.852-865.

Fu, X., 2008. Foreign direct investment, absorptive capacity and regional innovation capabilities: evidence from China. Oxford Development Studies36(1), pp.89-110.

Kok, R. and Acikgoz Ersoy, B., 2009. Analyses of FDI determinants in developing countries. International Journal of Social Economics36(1/2), pp.105-123.

Liang, F.H., 2008. Does foreign direct investment harm the host country’s environment? Evidence from China.

Mackey, A. and Gass, S.M., 2015. Second language research: Methodology and design. Routledge.

Rosen, D.H. and Hanemann, T., 2009. China’s changing outbound foreign direct investment profile: drivers and policy implications (No. PB09-14). Washington, DC: Peterson Institute for International Economics.

Saunders, M.N., 2011. Research methods for business students, 5/e. Pearson Education India.

Tang, S., Selvanathan, E.A. and Selvanathan, S., 2008. Foreign direct investment, domestic investment and economic growth in China: A time series analysis. The World Economy31(10), pp.1292-1309.

Whalley, J. and Xian, X., 2010. China’s FDI and non-FDI economies and the sustainability of future high Chinese growth. China Economic Review21(1), pp.123-135.

Yu, J. and Walsh, M.J.P., 2010. Determinants of foreign direct investment: A sectoral and institutional approach (No. 10-187). International Monetary Fund.