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This thesis consists of two chapters. The first chapter studies the influence of FDI in China's economic development and the second chapter analyzes the Chinese high saving puzzle. The influence of FDI in China's economic growth and development has been the subject of a lot of debate, especially given the record inflows that the country has been registering in the last decade. Using a neoclassical growth model with foreign capital, the first chapter of this thesis answers the quantitative question of how big of an impact FDI has in the economic development and growth of China through the capital accumulation process and through spillovers from foreign capital. It does so by taking into account the timing and effect of gradual reforms that have opened China's economy up to the world since 1979. The findings can then be viewed in four distinct stages, which correspond to four distinct time ranges marked by those reforms significant for the inflows of foreign direct investment. The results support the view that FDI has a significant impact on the real GDP per capita level in terms of capital accumulation, especially after the 1992 `South Tour' reform. In addition, FDI's effect on China's economic growth through the growth in foreign capital component has been quite significant, especially in third stage of the analysis. The spillover effect of FDI has not been as significant as the one through pure capital accumulation, however it has a heightened effect in the later stages of reforms, supporting the claim that China has attracted a higher quality foreign capital after its ascension to the World Trade Organization in 2001.
The second chapter addresses a very popular subject in the related literature, the Chinese high saving rate puzzle. Using a simple one-sector neoclassical growth model, this chapter answers the quantitative question of how much of the high level of the Chinese saving rate and how much of the increase of over 15 percentage points over the last three decades it can explain via two different methodologies. The benchmark model approximates the average saving rate relatively well for the time range 1978 - 2000, however it cannot explain the second aspect of the puzzle, namely the increase in the saving rate level, especially after 2001, since China's entry into the World Trade Organization.
The transitory steady state model takes into account the effect of market liberalization reforms and offers a very good approximation of the increase in saving rate for the overall time range of the analysis. It also offers a relatively good approximation of the percentage point increase in the 2001-2011 decade, however it cannot reach the actual high level of the national saving rate. The gap between the data and the results of the transitory steady state model is relatively constant for the 1978-2000 range and it decreases for the last decade of the analysis, when the model values approach the data closer, suggesting that some aspect of the saving components might have to be included in future analysis, in order to explain both aspects of this puzzle simultaneously.