An empirical study on “the US-China trade deficit produced by FDI”

Jiyong Chen () and Wei Liu
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Jiyong Chen: Department of World Economics, Economics and Management School, Wuhan University, Wuhan 430072, China
Wei Liu: Department of World Economics, Economics and Management School, Wuhan University, Wuhan 430072, China

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2007, vol. 2, issue 3, 404-423

Abstract: This article makes an empirical study on the magnifying effect produced by foreign direct investment (hereafter called as FDI) on the US-China trade deficit through co-integration analysis and error-correction modeling. By combining the empirical results, we give out our own opinion that the expansion of the US-China trade deficit is supposed to partly ascribe to the fact that processed industry is the main path of FDI and to Counter sales and trade diversion which are produced by exports on reproduced production by foreign enterprises in China. On the above-mentioned basis, this article concludes that in order to reduce the US-China trade deficit effectively, we are supposed to expand our domestic demand, perfect our inviting-investment policies, implement FDI in China and quicken up the going out of our enterprises.

Keywords: FDI; the US-China trade deficit; trade diversion; processed trade (search for similar items in EconPapers)
JEL-codes: F14 (search for similar items in EconPapers)
Date: 2007
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