FDI Enhancing Agri-Productivity & Country Growth - Research Paper

Introduction

Agriculture plays an essential role in economic development, explicitly providing nutritional and food security and serves as the backbone of rural employment. Foreign Direct Investment plays a crucial role in enhancing and promoting a given country's economy by raising the countries levels, creating new job opportunities, and improving agricultural productivity. Agriculture productivity and growth have been considered to be vital in achieving a sustainable country growth and reducing the level of poverty. For years now, the Chinese agricultural system has been undergoing changes that include an increased role in agribusiness and large scale production, which has been promoted by FDI (Tang, 2009). In recent years, the Chinese economy has experienced increased growth due to increased inward FDI and the growth in agricultural export. It is estimated that by 2016, the net FDI of Chinese agricultural productivity increased by 33%.

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China has made considerable utilization of FDI that has led to a positive contribution towards the rapid Chinese growth of the economy. The inflows of the FDI in China's agriculture increases year by year. According to Chen (2019), China had the most considerable FDI utilization between the years 2000 to 2007. The Chinese FDI inflows scale in agriculture reached $2.10 billion by the end of 2012; this was a clear indication that China's agriculture had a strong attraction to other multinational companies and countries. The agricultural use of foreign capital in China has rapidly increased for years now. Between 1996 and 2006, an amount of $8.388 billion of contracted foreign investment was used to utilize 4130 projects in China (Jiang, 2019). The use of FDI in China's agricultural areas continues to cover a broader scope such as autonomous regions, municipalities and all other aspects of the agricultural industry

Problem Statement

China has the largest population with an estimate of 1.3 billion, covering an area of 960 million Kms Sq, with two-thirds of the people residing in rural areas. Arable land for agriculture covers only 7%; hence most people do not have a place to practice farming, thus making it difficult to attract foreign investment (Zheng & Sheng, 2017). Most farmers in China do not understand the concept of market-oriented agriculture that requires one to have a high-level specialization; instead, they practice traditional backward agricultural technology, making it difficult for them to attract the foreign investment in the modern world of large scale farming. As the agricultural sector's investment more so agribusiness continues to grow, investors continue to find themselves frustrated due to the complicated FDI policies in China. The country's current agricultural laws have not yet incorporated foreign direct investments in several agrarian services such as joint ventures, animal husbandry, and fisheries.

Significance of the Study

The study will be critical because it will provide more significant insight into the implications of FDI on agricultural productivity in China. This will help the policymakers to look keenly and examine the existing policies and look into the new ways of increasing the FDI inflows.

Research Objectives

The study's primary goal is to examine the implications of foreign direct investment towards agricultural productivity in China from a perspective of agriculture economies

Specific Objectives

• To determine the effects of foreign direct investment on agricultural productivity in China
• To analyse the factors that lead to the shortage of foreign direct investment in agricultural productivity in China
• To analyse the structure of foreign direct investment in China's agricultural production

Research Questions

• What is the effect of foreign direct investment on China's agricultural productivity?
• What are the implications of FDI on agricultural productivity in China?
• What are some of the factors that hinder the implementation of foreign direct investment in agricultural productivity in China?

Literature Review

This section provides an outline of the information that is related to the topic of the research. It includes information that is has been researched on foreign direct investment and agricultural productivity in China.

Chinese Agricultural Investments

By 2014, China was the second's world-leading foreign investor, in which the Chinese government projected to spend approximately $two trillion on the outward FDI (Gooch & Gale, 2018). Some of the foreign investments include agricultural products such as fruits and food products. Much of the discussion on the Chinese agricultural investments is based on a variant of compilations from international news and social media that are organized by organizations such as grain.org. As per Ruan (2017), agricultural investments overseas are faced by different barriers such as negative profits due to in-experienced global markets high tariffs, language barriers, among others. Studies have also revealed that outward Chinese investment more so in agricultural food products sectors has lagged compared to other industries such as real estate, mining, technology, and manufacturing (Anik & Sarker, 2017).

The Structure of FDI in China's Agriculture

In China, agriculture is subdivided into four sectors: farming, animal husbandry, forestry, and fishery. The FDI inflow scale has tremendously increased in these different sectors; for example, studies have shown that the FDI inflow of Chinese farming department increased by an average growth of 14.94% by 2012 (Zhi-Zhuan, 2014). Researchers have argued that the proportion of foreign direct investment inflow scale is plentiful in the farming sector. China is also divided into three regions i.e., eastern, central, and western areas, with the east part getting the largest share of agriculture foreign direct investment inflow. For years now, the region has continued to exhibit improvement in the distribution of agricultural foreign direct investment. There are also three forms of FDI inflows in China's agriculture i.e., wholly foreign-owned enterprise, contractual and equity joint ventures. According to research, the proportion of agricultural FDI inflow was high in wholly foreign-owned enterprises.

Theories of Foreign Direct Investment

According to Jiang & Wang (2019), FDI concentrated only on developed countries. FDI theory can be explained through four research schools namely; method of industrial organization that includes monopolistic advantage approach, international trade theory that primarily describes the different changes in the international trade and the global models of investment and also helps in explaining the motivation of FDI from the various aspects of product development. The internalization theory gives reasons the need for multinational corporations to create and establish internal markets by the use of FDI to assist in coordinating the international divisions of labour. The comprehensive theory that provides a broader interpretation of FDI includes specific assumptions such as the global production electric approach and the competitive advantage theory.

Research Methodologies

The study will use a mixed-method, i.e., qualitative and quantitative methods, in answering the research questions. Secondary and primary data will be used in this research in collecting data. The study will use questionnaires and interviews to collect primary data. This because these methods of data collection will be easy and not time-consuming. Secondary data will be obtained from scholarly articles, the internet, magazines, internet, library, and other publications (Ignatow & Mihalcea, 2017). The study will use a judgmental sampling technique and a simple random sampling technique. After the data has been coded and stored in a Spreadsheet, the data will be analysed using a statistical analytical tool (SPSS). Descriptive and inferential statistics will be examined. Descriptive data will be explained by the use of summary statistics, frequency tables, and histograms. Inferential statistics will be analysed using the chi-square test and ANOVA test (Kilubi, 2018). The findings will then be discussed as per the research objectives based on the research questions.

References

Anik, A. R., Rahman, S., & Sarker, J. R. (2017). Agricultural productivity growth and the role of capital in South Asia (1980–2013). Sustainability, 9(3), 470. https://www.mdpi.com/2071-1050/9/3/470

Fofana, K. H., Xia, E., & Traore, M. B. (2018, July). Dynamic relationship between Chinese FDI, agricultural and economic growth in West African: an application of the pool mean group model. In Journal of Physics: Conference Series (Vol. 1060, No. 1, p. 012066). IOP Publishing.

Gong, B. (2018). The impact of public expenditure and international trade on agricultural productivity in China. Emerging Markets Finance and Trade, 54(15), 3438-3453.

Gooch, E., & Gale, F. (2018). China’s foreign agriculture investments (No. 1476-2018-5461). https://ageconsearch.umn.edu/record/276237/

Ignatow, G., & Mihalcea, R. (2017). An introduction to text mining: Research design, data collection, and analysis. Sage Publications.

Jiang, X., Chen, Y., & Wang, L. (2019). Can China’s Agricultural FDI in Developing Countries Achieve a Win-Win Goal?—Enlightenment from the Literature. Sustainability, 11(1), 41. https://www.mdpi.com/2071-1050/11/1/41

Kilubi, I. (2018). Research methodology and data collection. In Strategic Technology Partnering and Supply Chain Risk Management (pp. 79-89). Springer Gabler, Wiesbaden.

Lovely, M. E., & Huang, Z. (2018). Foreign Direct Investment in China's Hightechnology Manufacturing Industries. China & World Economy, 26(5), 104-126.

Qu, T., & Green, M. B. (2018). Chinese foreign direct investment: A subnational perspective on location. Routledge.

Quan, Y., & Liu, Z. R. (2002). An Analysis of Current Problems in China's Agriculture Development: Agriculture, Rural Areas and Farmers (No. 138-2016-1970). https://pdfs.semanticscholar.org/068c/0c22a2929d6ba53f94cd16511adf29b7021f.pdf

Ruan, J. (2017). Development Economics: The Role of Agriculture in Development. China Agricultural Economic Review.

Tang, L. (2009). A Study on Foreign Direct Investment Agriculture in China. International Journal of Business and Management, 4(11), p127.

Zheng, J., & Sheng, P. (2017). The impact of foreign direct investment (FDI) on the environment: market perspectives and evidence from China. Economies, 5(1), 8. https://www.mdpi.com/2227-7099/5/1/8

Zhi-Zhuan, Z. (2014, April). Analysis of the Structure of Foreign Direct Investment in China’s Agriculture. In 2014 International Conference on Economic Management and Trade Cooperation (EMTC 2014). Atlantis Press. https://www.atlantis-press.com/proceedings/emtc-14/11800