An initial push for successful transition from import substitution to export-orientation in Taiwan and China: The FDI-led hypothesis

Kankesu Jayanthakumaran and Shao-Wei Lee
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Shao-Wei Lee: University of Wollongong, http://business.uow.edu.au/econ/who/index.html

Economics Working Papers from School of Economics, University of Wollongong, NSW, Australia

Abstract: This paper examines the association between government policy interventions, Foreign Direct Investment (FDI) and exports in Taiwan and China by applying the LP (Lumsdaine and Papell, 1997), approach allowing two endogenous structural breaks. This paper further explores the cointegrating relationship between FDI and exports in Taiwan by using the Johansen and Juselius (1990) approach and causal relationships between FDI and exports in both Taiwan and China by using the Granger causality tests respectively. We found that significant trend breaks in the FDI and export time series detected in both countries coincided with extensive government interventions, mainly in the form of Export Processing Zones (EPZ), encouraging FDI during a transition period from import substitution to export orientation. The results emerging from our research indicate no long-run cointegrating relationship in Taiwan and one-way causal relationship flows from exports to FDI in China and FDI to exports in Taiwan. The growing fear is that the World Trade Organisation’s (WTO) involvement in deregulating EPZs may narrow the differences between the zones and the rest of the economy and prevent new firms from entering the zones. The EPZs may no longer be the transitional strategy for poor/developing countries.

Keywords: FDI; Exports; EPZ; structural breaks; causality; East Asia (search for similar items in EconPapers)
JEL-codes: C22 F21 R58 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2007
New Economics Papers: this item is included in nep-cna, nep-dev, nep-int and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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