Impact of Regional Trade Agreements on Chinese Foreign Direct Investment

Abstract

This article studies the impact of regional trade agreements (RTAs) on changes in China's foreign direct investment (FDI) inflow. A modified gravity model is adopted in the empirical analysis, using FDI inflow as a dependent variable, and home-country factors, host-country factors, and bilateral linkage factors (including RTA variables) as determinants. The article analyzes a set of home countries investing in a group of host countries using pooled data. It models China's FDI inflow from a set of home countries as a special case, using panel data regression with country fixed effects. Time series data are differenced once to eliminate a nonstationary data problem. The results indicate that the formation and implementation of RTAs is an important determinant of FDI inflow in some cases. Membership in APEC stimulates China to attract more FDI from non-APEC countries.