Master of Science
Dr. Scott Gilbert
As China becomes the world’s second largest economy, it is among the top positions as an FDI destination. FDI inflows in China have grown dramatically in the last thirty years, from 1258 million dollars in 1984 to 90033 million dollars in 2009. Along with China’s growing real estate market, FDI inflows to the real estate sector have also increased by more than 200 percent in the last decade. In recent years, the price of commercialized buildings in major cities increased tremendously which arouses concern of bubble in the real estate industry in China. This paper explores the impact of FDI on the real estate sector in China using the OLS method and granger causality test. Evidence found in this study suggests that a 1% increase in the growth rate of the utilized FDI will bring about 0.55% increase in the growth rate of the average selling price of commercialized buildings and nearly 93% of the variation in the latter can be explained by the former variable. The results of granger causality test suggest that the causality runs from the utilized FDI to the average selling prices of commercialized buildings. The policy implication from our analysis is that regulations should be implemented in controlling the amount of FDI in the real estate sector and guidance should be provided in directing the sector distribution of FDI.