Research On The Trade Effects In China For Non-cross-border Investment In Agriculture

With the urbanization, China’s problem of per capita agricultural resource scarcity worsens. Agricultural outward foreign direct investment has become an inevitable choice. Although the China’s OFDI has grown rapidly, as an important part of "going out" strategy, outward foreign direct investment in agriculture has not been given sufficient attention. Meanwhile, Africa has abundant agricultural resources, because of restricted technical level and other limitations, has not been fully utilized. In this paper, the first chapter presents an analysis of the necessity and feasibility of China’s needs and the ability to agricultural outward FDI in Africa.The purpose of this paper is to investigate one aspect to the economic effects of China’s agricultural outward FDI in Africa, namely trade effects. As the trend toward globalization in the world economy continues, outward FDI has become one of the main concerns of policymakers. They are confronted with a need to liberalize outward FDI to promote international competitiveness. At the same time, policymakers have some reservations against total de-regulation, since they fear that OFDI might decrease home country exports and result in a hollowing-out of the domestic economy. At the final part, this paper attempts to give some policy recommendations regarding this issue.The effect of outward FDI on exports, whether outward FDI decreases (substitutes) or increases (complements) exports from the home country, has been a subject of debate since the1960s. Assuming that the size of a market or a firm’s share of a market is exogenously given, then, the decision to produce abroad is just a matter of choosing between possible methods of serving the foreign market; namely, choosing between exporting from the home country and producing abroad. In this case, outward FDI substitutes exports from the home country. However, if local production raises a firm’s market share or increases the demand for the product, and if that local production requires some input (such as components), from the parent country, it might lead to a greater level of home country exports not only from parent company but also from co-national rival companies. In addition, building a cooperative relationship with a foreign country through the establishment of a subsidiary or a partnership may be advantageous in negotiations over import quotas in that country, thereby increasing exports from the home country.So how does China’s agricultural OFDI in Africa affect China’s export to Africa? At the beginning of Chapter4, this paper constructs a mathematical model, finding that the relationship between them can be either complementary or substitutive, and the final performance is determined by the combined effect of the two. Not only consumers’ preference of the industry’s final product in the host countries and their preference of the exports of parent country to the production of the investment in host countries but also the level of income in host countries will influence the OFDI’s effect on export.The greater the consumers’ preference of the industry’s final product in the host countries and their preference of the exports of parent country to the production of the investment in host countries are, the higher level of the income, the relations between the OFDI and trade is more likely complementary. Then this paper takes an empirical analysis by using the data of agricultural OFDI and trade between China and20chosen African countries. The result shows that there is a long-term stable relationship (positive) between China’s agricultural OFDI in Africa and the agricultural exports between them. However, there are significant nonlinear characteristics of China’s agricultural OFDI in Africa effects on export. The effects vary in the different market size, infrastructure and risk conditions. Based on the study of infrastructure, market size and openness, they are all positively correlated to the trade effect. OFDI’s complementary effects on exports are stronger in areas with low degree of risk and better infrastructure while in the area with worst infrastructure condition, the substitution effect dominates. As for the market size, it shows the effect has a dual threshold asymmetric characteristics OFDI’s complementary effect on trade is more prominent in the large or small market while relatively weak in the market of moderate size.China’s agricultural OFDI in Africa affect China’s export to Africa not only on the number of "quantity", but also on the "qualitative change" of the structure. Based on the study of the composition changes in China’s agricultural exports, the fifth chapter analyzes the changes of the structure of the exports to Africa by constructing G-L index and Gini-Hirschman Index, and on that basis, leading to the conclusion that China’s agricultural OFDI in Africa will optimize China’s agricultural exports structure to Africa by taking co-integration and Granger causality test.