The Relatioships Between FDI Inflows And The Foreign Trade, Economic Growth And Capital Flight Of A Host Country

Western research work has established the linkage between FDI inflows and the economy of host countries, in which the FDI inflows has positive effects as well as negative effects. This paper aims to study the effects of FDI inflows on Chinese economy, which is of significance in theoretical research and in policy-making.I. The summary of the paperThe aims of the paper are subjected to at least three factors. The lack of sufficient samples in time-series data, the lack of the framework of some FDI effects, and the limitation on pages of a PhD thesis, all make it impossible to study every effect the FDI may have on a specific economy. This paper concentrates on three effects: the effects on Chinese foreign trade, the effects on Chinese economic growth, and the effects on Chinese capital flight.In order to systematically study the effects of FDI inflows on Chinese foreign trade, this paper sets up two aims: studying the effects on the foreign trade volume, and studying the effects on the improvement of export structure. This paper, basing on some traditional research work, o..r.ig..in.a..l.ly. constructs 3 simple econometric models to study the effects. Specifically, this paper constructs a simple VAR model, and estimates the parameters and IRFs, avoiding the identification of the endogenous variables and use of small samples of annual data, to examine the effects of FDI inflows on foreign trade volume. Then this paper constructs a simple linear model and a VAR model to study the effects of FDI inflows on the improvement of export structure.In order to systematically study the effects of FDI inflows on Chinese economic growth, this paper aims to study the effects both in long term and in short term. The paper, basing on some traditional research work, modifies the theoretical framework of economic growth with FDI factors, to o..r.ig..in.a..l.ly. construct some simple econometric models, including some simple linear models and ECMs to examine the long term effects, and a VAR model with variables of FDI, exports, and economic growth, to examine the short term effects.In order to systematically study the effects of FDI inflows on Chinese capital flight, this paper, basing on the construction of an o..r.ig..in.a..l theoretical framework for examining the behaviors of enterprises dealing with capital flight on the basis of game theory, constructs several simple econometric models to examine the linkage among FDI, exports and capital flight.II. The argument of the paper and its main contributionThis paper contributes to increasing our understanding on the effects and impacts of FDI inflows on an economy, by clarifying some conflicting arguments among different researchers, either supporting some arguments or weakening the opposite arguements. Apart from what have been mentioned, this paper also contributes to the improvement of domestic economic research methodology in China.This paper, examining the effects of FDI inflows on Chinese foreign trade, argues that the positive effects of FDI inflows on exports or imports are much greater than that of exports or imports on FDI inflows, suggesting the FDI conducted by Multinational Corporations indeed improves the volume of foreign trade while the foreign trade is not the key factor behind Multinational Corporations'investment strategy, which supports the findings of traditional research work; that FDI inflows explicitly improve the exports structure, suggesting the Multinational Corporations indeed introduce technology and industrialization to China, which partly settles the conflicting arguments in traditional research work. In addition, this paper has two contributions to empirical methods, including the construction of VAR model to avoid the difficulties in identification of endogenous variables when constructing linear models by some researchers, and the use of bigger sample of monthly data instead of annual data in order to improve the credibility of parameter estimation and forecasting.This paper, examining the effects of FDI inflows on Chinese economic growth, argues that the positive effects of FDI inflows on economic growth are much greater than that of exports on economic growth, suggesting that the FDI inflows are the leading factors behind Chinese economic growth; that the spill-over effect of FDI inflows in the long run is the leading factor of the positive effect, suggesting what is more important of FDI brings to China is the management experience, technology, enterprise culture, etc, of Multinational Corporation; that the input-effect of FDI inflows is the leading factor behind the First Industry output growth in a long run while the spill-over effect the Second and Third Industry output growth. In addition, this paper has three contributions to empirical methods, including specification of an original formula to estimate the spill-over effect, the construction of VAR model to avoid the difficulties in identification of endogenous variables when constructing linear models by some researchers, and the use of bigger sample of seasonal data instead of annual data in order to improve the credibility of parameter estimation and forecasting.This paper, examining the effects of FDI inflows on Chinese capital flight, argues that there is a linkage among FDI, exports and capital flight. This paper contributes to the introduction of an original framework in studying the micro-behavior of enterprise when conducting capital flight, basing on the evolutionary game theory. In addition, this paper, estimating a series of econometric models, argues that there are evidences supporting the findings of the linkage among FDI, exports and capital flight: FDI↑→exports↑→capital flight↑→FDI↑.In brief, this paper contributes to increasing our understanding on the relationships between FDI inflows and the foreign trade, economic growth and capital flight of China as a host country, to base on which the Government needs to launch better policies related to FDI inflows.