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Does foreign direct investment promote exports in China?

Author

Listed:
  • Xin Li
  • Hsu Ling Chang
  • Chi Wei Su
  • Yin Dai

Abstract

Purpose - The purpose of this paper is to investigate the causal link between foreign direct investment (FDI) and exports in China based on the knowledge capital model (KK model, Markusen, 2002). Design/methodology/approach - The bootstrap Granger full-sample and sub-sample rolling window causality test is used to determine whether FDI can promote exports. Findings - The full-sample causality test indicates no causal relationship from FDI to exports. However, considering structural changes of exports and FDI, the authors’ find that the full-sample test is not reliable. Instead, the authors use the rolling window causality test to revisit the dynamic causal relationship, and the results present significant effects from FDI on exports, mostly around periods in which the proportion of FDI from Hong Kong, Macao and Taiwan is increasing. Specifically, positive impacts of FDI on exports are stronger than the negative impacts in China. Research limitations/implications - The findings in this study suggest a significant time-varying nature of the correlation between FDI and exports. The promotion effect of FDI to exports is proved by the rolling window approach; it thus supports the KK model that divides FDI into lateral FDI and vertical FDI and proves that the constitution of FDI is critical to the relationship between FDI and exports. Practical implications - China has been facing adjustment of its economic structure in recent years, and in this situation, increasing the proportion of FDI that can bring advanced production function is critical for the industrial structural adjustment. Originality/value - This paper uses the bootstrap rolling window causality test to investigate the time-varying nature of the causality between FDI and exports, considering structural changes for the first time. The authors further deepen the previous research and draw a more realistic conclusion.

Suggested Citation

  • Xin Li & Hsu Ling Chang & Chi Wei Su & Yin Dai, 2017. "Does foreign direct investment promote exports in China?," China Finance Review International, Emerald Group Publishing Limited, vol. 7(2), pages 185-202, May.
    • Handle: RePEc:eme:cfripp:cfri-04-2016-0026
    DOI: 10.1108/CFRI-04-2016-0026
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    Citations

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    Cited by:

    1. Zhang, Yihao & Chen, Fang & Huang, Jian & Shenoy, Catherine, 2019. "Hot money flows and production uncertainty: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    2. Samba Diop & Simplice A. Asongu & Vanessa S. Tchamyou, 2021. "The Macroeconomic Impact of Recent Political Conflicts in Africa: Generalized Synthetic Counterfactual Evidence," Working Papers of the African Governance and Development Institute. 21/060, African Governance and Development Institute..
    3. Fadzli Adam, 2020. "Foreign Capital and Domestic Productivity in Developing Countries: An Empirical Analysis," Asian Development Policy Review, Asian Economic and Social Society, vol. 8(4), pages 288-297, December.
    4. Eleftheria Koniari, 2017. "Greek Foreign Direct Investments In South-Eastern Europe," Economics and Management, Faculty of Economics, SOUTH-WEST UNIVERSITY "NEOFIT RILSKI", BLAGOEVGRAD, vol. 13(1), pages 67-83.
    5. Heri Oscar Landa Díaz, 2019. "Flujo internacional de conocimientos y productividad: un estudio de la industria manufacturera en México," Contaduría y Administración, Accounting and Management, vol. 64(1), pages 1-2, Enero-Mar.
    6. Idrys Fransmel Okombi, 2021. "Taxation et croissance économique en Afrique: la qualité des institutions importe‐t‐elle?," African Development Review, African Development Bank, vol. 33(4), pages 592-606, December.
    7. Francois Cornelius Wehncke & Patricia Lindelwa Makoni & Godfrey Marozva, 2022. "Nexus Between FDI, ODA and Economic Growth in Developing African Countries: A Systems Approach," Economic Research Guardian, Weissberg Publishing, vol. 12(2), pages 97-114, December.
    8. Oumarou Zallé & Idrissa M. Ouédraogo, 2021. "Spillover effects of corruption and democracy on territorial attractiveness of foreign direct investment in sub‐Saharan Africa," African Development Review, African Development Bank, vol. 33(4), pages 756-769, December.
    9. Heri Oscar Landa Díaz, 2019. "International knowledge spillovers and productivity: A study of the manufacturing industry in Mexico," Contaduría y Administración, Accounting and Management, vol. 64(1), pages 3-4, Enero-Mar.
    10. Sayed Farrukh Ahmed & A. K. M. Mohsin & Syed Far Abid Hossain, 2023. "Relationship between FDI Inflows and Export Performance: An Empirical Investigation by Considering Structural Breaks," Economies, MDPI, vol. 11(3), pages 1-17, February.
    11. Kingsley Ikechukwu Okere & Obumneke Bob Muoneke & Favour Chidinma Onuoha & Philip C. Omoke, 2022. "Tripartite relationship between FDI, trade openness and economic growth amidst global economic crisis in Nigeria: application of combined cointegration and augmented ARDL analysis," Future Business Journal, Springer, vol. 8(1), pages 1-23, December.
    12. Daxue KAN & Weichiao HUANG, 2019. "Empirical Study of the Impact of Outward Foreign Direct Investment on Water Footprint Benefit in China," Sustainability, MDPI, vol. 11(16), pages 1-16, August.
    13. Yassin Elshain Yahia & Haiyun Liu & Abdalla Sirag & Sayyed Sadaqat Hussain Shah, 2020. "The Impacts of Intra-Trade on Industrialization: Evidence from COMESA," Asian Development Policy Review, Asian Economic and Social Society, vol. 8(2), pages 75-101, June.
    14. Shib Sankar Jana & Tarak Nath Sahu & Krishna Dayal Pandey, 2020. "How far is FDI relevant to India’s foreign trade growth? An empirical investigation," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-19, December.
    15. Daniel Francois Meyer, 2019. "An Assessment Of The Importance Of The Agricultural Sector On Economic Growth And Development In South Africa," Proceedings of International Academic Conferences 9912288, International Institute of Social and Economic Sciences.
    16. Radovan Kastratović, 2020. "The impact of foreign direct investment on host country exports: A meta‐analysis," The World Economy, Wiley Blackwell, vol. 43(12), pages 3142-3183, December.
    17. Yaya Keho, 2020. "Linkages between Foreign Direct Investment and Financial Development: Evidence from West African Countries," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(6), pages 1-3.

    More about this item

    Keywords

    Foreign direct investment; Exports; Lateral direct investment; Time-varying causality; Vertical direct investment; C32; F14; G15;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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