FDI And The Development Of Foreign Trade

The interrelationship between foreign direct investment and foreign trade has increasingly drawn much attention due to the emergence of multinational companies, the increasing share of intra-industrial trade and the deepening of international specialization. The experience of China's economic reform and growth has also witnessed the key role of foreign direct investment in promoting the development of foreign trade in China. However, as be pointed out by recent literatures, it's still controversial whether there is a substitute relation or a complementary relation between foreign direct investment and international trade. What's more, although it's a matter of fact that foreign firms have played a key role in China's foreign trade in recent years, empirical analysis should be made to correctly evaluate the role of foreign firms in China's trade development. Therefore, this essay aims at making a general analysis on the influences of foreign direct investments on China's foreign trade both theoretically and empirically, especially the effects of foreign firms on China's trade patterns and unbalanced regional trade development. For theoretical research, this essay mainly attempts to establish a comprehensive framework by generalizing the theoretical history of foreign direct investment and trade research. For empirical research, this essay first utilizes China's time series data during the period of 1980~2003 to investigate the impacts of foreign firms on China's export, import, change of trade patterns as well as the structural influence of trade policy. Further research has been made on the impacts of foreign direct investment on China's unbalanced regional trade development by using 30 provincial panel data during 1996~2002. Finally, based on theoretical outcomes and empirical findings, series of policy suggestions have also been made.