Abstract
Most papers have come to positive conclusions regarding whether Chinese outward foreign direct investment really promote export. This paper contributes by correcting model misspecification, wrong variable selection and estimation methods which are prevalent in existing studies and reexamine the relationship between outward foreign direct investment and export trade of China using panel data from 2003 to 2014. The regressions indicate that, on average, the point estimate of the elasticity between Chinese outward foreign direct investment and export trade is at most 0.073, and it is not statistically significant. Sub-sample regressions show that Chinese investment in developed economies slightly substitutes export while investment in developing economies complements export. But these effects disappear when country-specific effects are controlled. Year-by-year regressions show that the complementary effect of OFDI on export is on a steady rise. Using correctly specified model with more appropriate variable selection and estimation methods and take into account the quantitative difference between OFDI and export, any “substitutionary” or “complementary” effect is indeed negligible.
Highlights
Most papers have come to positive conclusions regarding whether Chinese outward foreign direct investment really promote export
With the “One belt and One road” policy recently proposed by China, OFDI and international trade would play more important roles in the economic development of China and related economies
Clarifying the relationship between OFDI and export will be conductive to provide a scientific reference for policy development and analysis of welfare gains and losses, which is of great significance
Summary
Most papers have come to positive conclusions regarding whether Chinese outward foreign direct investment really promote export. Introduction With the continuous growth of Chinese economy, Chinese outward foreign direct investment develops rapidly. From the year of 2003 when the “statistical bulletin of Chinese foreign direct” was first published to the year of 2014, Chinese foreign direct investment flow grew from $28.5 billion to $1231.2 billion and the accumulated stock grew from $299 billion to $8826.4 billion, with the average annual growth rate being 40.8 and 36.0 %, respectively. In 2014, Chinese foreign direct investment accounted for 9.1 and 3.4 % of global flow and stock, respectively, ranks the third and eighth in the world; 18.5 thousand Chinese investors have set up 29.7 thousand enterprises that distribute in 186 foreign countries (territories), which indicates that China has gradually developed from a capital attraction country to an investment country. In the new background that China actively promotes the “One Belt and One Road” strategy in neighboring countries, it is a greater development opportunity for Chinese foreign direct investment, which makes the effect of foreign
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