Foreign Direct Investment and Skill Formation in China

Using panel data analyses, this paper examines the relation between human capital formation and Foreign Direct Investment (FDI) in China. It shows that FDI has a significant effect on human capital formation, at least for the period 1995-2001. When we estimate the relationship between FDI and skill formation for the coastal and non-coastal provinces separately, the positive relationship is maintained, and this relationship also holds when we consider investment in real estate or the ratio of number of foreign firms to total number of firms investing in China. The results stand robust in the causality test and the sensitivity analysis.