Outward Direct Investment And Foreign Trade Changes In China:Mechanism And Evidence

The rapid expansion of China's foreign trade and its quick transforming from a small trading country to giant one during the last three decades owe a lot to a series overlaping elements related with opening up strategy and policies. The institutional reform, attracting FDI with privileged polices in the special economic zones, opening up the whole coastland areas, joining the WTO and launching the "going out strategy", etc, are typical ones. All these can be looked as series events. Recently, the hot topic is the effect of ODI on China's foreign trade. The relationship between ODI and foreign trade of the home country is an old topic of international economics. But until now, researches on the topic neglected some basic facts. On the one hand, most of researches have paid more attention to the relationship between ODI and trade in the industrial countries but they neglected the phenomenon in emerging market economies; On the other hand, most of the researches have paid more attention to the hypothesis of "complementary effect" or "substitution effect" but neglected the mechanism of the effect of ODI on trade. In the meanwhile, they neglected the trade structure effect and terms of trade effect. The main aim of this dissertation is to study the dynamic trade effect of China's ODI, including trade scale effect, trade structure effect and terms of trade effect.In theory, this dissertation has studied the mechanism of capital movement on trade through expanding Mundell's capital movement of small country model to big country model. But the mechanism of ODI on trade is more complex than mere capital movement. Therefore this dissertation analyzes the theoretical model of effect of ODI on home country trade on the hypothesis that multinational corporations would maximize their profit. The dissertation derives three empirical prepositions (dynamic effect of relationship between ODI and trade scale, trade structure and terms of trade) on the theoretical analysis.On the basis of analysis of mechanism of effect of ODI on trade, this paper builds the empirical regress model to testify the relationship between ODI and trade scale, trade structure and terms of trade, using time series data of China's ODI and trade which come from UNCTAD and WTO respectively. As far as the effect of ODI on trade scale, using data from1982-2010, empirical results show that both the stock and flow of ODI have positive effect on the scale of home country's trade. Furthermore, the stock of ODI has more effect on trade scale than the flow of ODI does. The stock of ODI expands both the volume of home country's merchandizing trade and service trade. As far as the effect of ODI on trade structure, there is no obvious evidence that the stock of ODI has positive effect on trade structure when using time series data. But the flow of ODI has lagged effect on trade structure. Furthermore, when the panel data of China's7industries from2006to2010are used, the empirical results show that the stock and flow of ODI have positive effect on the structure of home country trade. Lastly, this dissertation testifies the relationship between ODI and home country's terms of trade. Results show that the stock of ODI improves China's terms of trade but the flow of ODI deteriorates it when time series data are used. But the demand of domestic market and international market are decisive factors of China's terms of trade.The theoretical meaning of this study is that this dissertation extends the study field and deepens the preposition of the topic on relationship between ODI and home country trade. This dissertation analyzes the characteristics of China's ODI as a typical model of emerging market and extends the study field from trade scale effect to trade structure effect and terms of trade effect as well as the dynamic trade scale effect. This paper attempts to use new method to test the preposition. The policy meaning of this study is that the government should set the appropriate aim of "Going Out Policy".The "Going Out Policy" should not only consider the trade scale effect of market expanding motivated and resource seeking ODI but also the trade structure effect and terms of trade effect, which contains more trade benefit effect.