Does foreign direct investment promote exports in China?

Xin Li, Hsu Ling Chang, Chi Wei Su and Yin Dai

China Finance Review International, 2017, vol. 7, issue 2, 185-202

Abstract: Purpose - The purpose of this paper is to investigate the causal link between foreign direct investment (FDI) and exports in China based on the knowledge capital model (KK model, Markusen, 2002). Design/methodology/approach - The bootstrap Granger full-sample and sub-sample rolling window causality test is used to determine whether FDI can promote exports. Findings - The full-sample causality test indicates no causal relationship from FDI to exports. However, considering structural changes of exports and FDI, the authors’ find that the full-sample test is not reliable. Instead, the authors use the rolling window causality test to revisit the dynamic causal relationship, and the results present significant effects from FDI on exports, mostly around periods in which the proportion of FDI from Hong Kong, Macao and Taiwan is increasing. Specifically, positive impacts of FDI on exports are stronger than the negative impacts in China. Research limitations/implications - The findings in this study suggest a significant time-varying nature of the correlation between FDI and exports. The promotion effect of FDI to exports is proved by the rolling window approach; it thus supports the KK model that divides FDI into lateral FDI and vertical FDI and proves that the constitution of FDI is critical to the relationship between FDI and exports. Practical implications - China has been facing adjustment of its economic structure in recent years, and in this situation, increasing the proportion of FDI that can bring advanced production function is critical for the industrial structural adjustment. Originality/value - This paper uses the bootstrap rolling window causality test to investigate the time-varying nature of the causality between FDI and exports, considering structural changes for the first time. The authors further deepen the previous research and draw a more realistic conclusion.

Keywords: Foreign direct investment; Exports; Lateral direct investment; Time-varying causality; Vertical direct investment; C32; F14; G15 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:cfripp:cfri-04-2016-0026

DOI: 10.1108/CFRI-04-2016-0026

Access Statistics for this article

China Finance Review International is currently edited by Professor Chongfeng Wu and Professor Haitao Li

More articles in China Finance Review International from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().