Impact of Economic Reforms, FDI and Imports on GDP: Trends and Regression Analysis

Abstract

The aim of this study is to explore the causal relationship between the exports, imports and economic growth of Chinese economy using time series data running from 1978 to 2016.Co integration, Granger Causality analysis and Vector Error Correction Mechanism (VECM) has been used in order to test the hypotheses about the presence of causality and co integration among the variables. The co integration test confirmed that exports, imports and GDP are co integrated, indicating an existence of long run equilibrium relationship among the variables and also confirmed by the Johansen co integration test results. The Granger causality test finally confirmed the presence of bi-directional causality between exports, imports and GDP. The study further shows that relative share of china’s exports in world exports has increased significantly after the introduction of economic reforms. Further, the rising exports have also made a significant contribution to the economic growth of Chinese economy due to forward and backward linkages.