An empirical study on the long-term correlation between international trade and infl ow of Foreign Direct Investment based on Cointegration Theory: Evidence from China

Abstract

This paper studies the long-term relationship between FDI and imports and exports through evidence from China by using cointegration technology, and the Granger causality test shows that FDI had an obvious effect on imports and exports activities of foreign firms, and in the meantime, the imports and exports of foreign firms greatly promoted FDI. However, there is not a stable equilibrium between FDI and international trade in the long run for all firms in China. This paper provides some explanations for the possible reasons that cause the above difference in estimation results from the perspectives of both location and industry factors.

Keywords

international trade, FDI, long-term equilibrium, cointegration