Author: Chih-Fan Lin

 

Journal: China Finance and Economic Review
 
Publisher: Springer Open
 
Background
Most papers have come to positive conclusions regarding whether Chinese outward foreign direct investment really promote export.
 
Methods
This paper contributes by correcting model misspecification, wrong variable selection and estimation methods which are prevalent in existing studies and reexamine the relationship between outward foreign direct investment and export trade of China using panel data from 2003 to 2014.
 
Results
The regressions indicate that, on average, the point estimate of the elasticity between Chinese outward foreign direct investment and export trade is at most 0.073, and it is not statistically significant. Sub-sample regressions show that Chinese investment in developed economies slightly substitutes export while investment in developing economies complements export. But these effects disappear when country-specific effects are controlled. Year-by-year regressions show that the complementary effect of OFDI on export is on a steady rise.
 
Conclusions
Using correctly specified model with more appropriate variable selection and estimation methods and take into account the quantitative difference between OFDI and export, any “substitutionary” or “complementary” effect is indeed negligible.
 
This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.

Illustration Photo: Chinese-owned textile factory in Africa (Credits: K. Kendall / Flickr CC BY 2.0)

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