Analysis of China’s Import from & Direct Investment in ASEAN—Based on Gravity Models

Abstract

China and Southeast Asian nations free trade area was formally established on January 1, 2010. By the end of year 2011, China’s foreign exchange reserves exceeded 3200 billion US dollars. Trade gravity model originates from the law of universal gravitation. Domestic researchers have made empirical studies using trade gravity model of trade between China and Southeast Asian nations. There are also studies of foreign direct investment or Chinese tourist arrivals in Vietnam, using gravity model. However, neither tariff and foreign exchange reserves are taken into consideration in studying China and Southeast Asian nations free trade area, nor gravity model is used in analyzing China’s direct investment and tourist arrivals in Southeast Asian nations. Using econometrics software “Eviews 5.0” and based on a panel data from year 2000 up to 2008, this paper constructs a gravity model, the independent variables of which are gross domestic product per capita of CAFTA countries, foreign exchange reserves of CAFTA countries, squares of southeast Asian nations, and distance between China and southeast Asian nations. And quantitative relationship is made between independent variables and China’s direct investment in Southeast Asian nations, import from Southeast Asian nations, as well as arrivals of Chinese visitors in Southeast Asian nations.