Foreign Direct Investment and Trade: An Empirical Investigation of the Evidence from China

Chunlai Chen

No 1997-11, Chinese Economies Research Centre (CERC) Working Papers from University of Adelaide, Chinese Economies Research Centre

Abstract: The main objective of this study is to investigate the relationship between foreign direct investment (FDI) and trade and further to examine the impact of FDI on trade from the evidence of China. Some earlier theoretical work has predicted either a substitute or complementary relationship between FDI and trade yet some empirical studies have revealed a positive relationship between FDI and trade. In this study, using the recent FDI and trade data of China, we find that FDI has a positive impact both on China's provincial trade and on China's bilateral trade. It argues that given the overwhelming dominance of developing source countries and their labour-intensive investment pattern in China, FDI is mainly export-oriented and, therefore, has a positive impact on promoting China's international trade. JEL: F14, F21, C12

Date: 1997
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