Using the gravitational mixed models to analyze the impact of China's foreign direct investment along with The Belt and Road countries on trade flows.

Abstract

Since the “The Belt and Road” initiative was put forward in 2013, China's foreign investment growth rate has been greatly accelerated. In The Belt and Road context, many scholars used models to analyze the relationship between foreign direct investment, trade flows, and import and export trade. From literature reviews, it is found that previous scholars do not conform to reality and cannot be studied dynamically. Therefore, this study used the panel data of China's foreign direct investment and import and export trade in 40 countries along “The Belt and Road” from 2010 to 2019 to focuses on the impact of foreign direct investment (FDI) on trade flows, import trade and export trade. Regression analysis was carried out with the trade gravity model and Tinbergen's trade gravity model. In addition to model variables and arguments, the following control variables were adopted: exchange rate, natural resource rents, labor force population, differences in consumer ability, trade openness, and trade agreement signing. The results found that: (1) Foreign direct investment has a positive correlation with trade flow and import and export trade. (2) The labor force population has a negative correlation with trade flow, and import and export trade. (3) The expansion of China's economic scale can increase the scale of China's import and export trade, at the same time, the gap in consumption levels between the two countries will restrict the degree of import and export trade. (4) The possession of natural resources can also promote the development of trade.