The Effect of Exports and Two-Way Foreign Direct Investment between China and Pan-East Asian Countries

Abstract

Rising protectionism and globalization have led to new interest in new regionalism. The facilitation and liberalization of two-way direct investment between China and Pan-East Asian countries result in increasing exports between these countries. By studying the relationship between China’s investment and export trade in Northeast Asian and Southeast Asian countries, this paper explores the influence mechanism of China’s two-way foreign direct investment and export trade with Pan-East Asian countries. The study discovers that with the improvement of the bilateral economic development level, China’s Outward Foreign Direct Investment (OFDI) to Northeast Asia and Southeast Asian countries will significantly increase the scale of China’s export trade. Yet, the total value of the export creation effect decreases over time. China’s utilization of Inward Foreign Direct Investment (IFDI) has a significant inhibitory effect on export trade. The two-way interaction effect of China’s OFDI and IFDI is weak. As the level of IFDI in China increases, the effect of OFDI on exports increases—though this effect differs across regions and countries.