Abstract
ABSTRACTThis paper explores the effects of inward and outward foreign direct investment (FDI) on domestic investment in China using annual time series data over the period of 1982–2016. The empirical analysis is performed using ARDL bound testing procedure and fully modified OLS technique to get robust estimations. The causality analysis is also conducted by estimating a VECM based Granger causality test to reveal the direction of the relationship among the concerned variables. Overall results reveal that inward FDI substitutes domestic investment while outward FDI complements it. Moreover, the complementary effects of outward FDI on domestic investment are greater than those of inward FDI, implying that the former has the potential to offset the substitutional effects of the latter on domestic investment. The results remain robust across alternative specifications and estimators. Our study contributes to the worldwide debate on development finance by providing new econometric evidence on the linkages between capital flows and domestic investment. The findings suggest that FDI flows can contribute to the sustainable economic growth in China if pragmatic policies are framed to encourage local firms to engage in cross-border investment.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
