Trade liberalization, regional trade openness degree, and foreign direct investment:Evidence from China

Abstract

This paper investigates the relationship among trade liberalization, the degree of trade openness (DTO) and regional foreign direct investment (FDI) using Chinese data for 2001–2018 by hand collection. We apply the fixed effect model and find that both trade liberalization and regional DTO have a significantly positive relationship with regional FDI. Furthermore, a variable coefficient model is used to prove that the effects of trade liberalization on regional FDI are heterogeneous across regions. Finally, we use the threshold model to prove the significant threshold effects of DTO on the relationship of trade liberalization and FDI. This paper provides theoretical and policy support for countries with obvious regional differences to attract FDI.