How much can foreign multinationals affect the Chinese economy? A dynamic general equilibrium analysis of Japanese FDI

María Latorre (cmlatorre@estad.ucm.es) and Nobuhiro Hosoe

No 14-16, GRIPS Discussion Papers from National Graduate Institute for Policy Studies

Abstract: We analyze the impacts of a sharp fall Japanese of foreign direct investment (FDI) to China that occurred after the worldwide financial crisis in 2009. The study is conducted by means of a three-region (Japan, China, and the rest of the world (ROW)) recursive dynamic computable general equilibrium (CGE) model with multinational enterprises (MNEs) driven by FDI. Our simulation experiment showed that the FDI fall would cause price rises of Japanese affiliates’ goods and a depreciation of the renminbi. These two forces with the FDI fall would heavily reduce exports and production of Japanese MNE affiliates, while increasing those in Chinese manufacturing. This, however, does not mean that China would be a gainer, because it would experience a contraction in its service sector. Its losses in its service sector would exceed the gains in the manufacturing sectors. Therefore, overall China would lose due to the FDI fall.

Pages: 20 pages
Date: 2014-09
New Economics Papers: this item is included in nep-cna, nep-cse, nep-int and nep-tra
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Citations: View citations in EconPapers (1)

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