Research On Trade Effects Of Outward FDI

From the strategic perspective, all the world economic superpowers are big Outward Foreign Direct Investment (OFDI) nations. Not only can OFDI help home country bypass the trade barriers, reduce the exports of sensitive goods, ease the trade friction, but also can help home country restructure domestic industries step by step on its own initiative according to approved plans and suitable levels. By OFDI, home country can move the surplus domestic production capacity having more resource consumption but with constraints to host countries and regions with abundant supply of such resources and better market prospects, which can achieve harmonious coexistence, mutual benefit and win-win development goals.OFDI can also lead to transition and optimization of home country trade structure, help home country take a more active and positive access to reach advanced and applicable technology, to enhance domestic technology level, improve net terms of trade. At the same time, OFDI can make full use of two markets and two resources worldwide to improve more effective resource allocation, and promote economic globalization and its strategic opportunities to help domestic economic development and eventually make greater gains for OFDI home country.Therefore, it is necessary to study the OFDI trade effects from the perspective of the home country, to explore the function mechanisms and working principles, influential factors and final effects on home country trade volume changes, trade structure transition and trade gains distribution.This Dissertation makes a comprehensive theoretical analysis and research by exploring combined theoretical summary and deduction methods together with vertical and horizontal comparison methods, historical research and contemporary status study methods and integrated thinking and local case study methods. By using econometrics means such as co-integration theory, ADF test, Johansen test, Granger causality test and other modern mathematical analysis methods, this dissertation makes a in-depth empirical analysis and international comparisons referring to Japan and South Korea as the main cases with the published statistical data from WTO, UNCTAD, Japan, South Korea and China's Statistics Bureau and relevant agencies. At the end of the paper, China's status quo and development of OFDI trade effects are studied and comprehensive thoughts and policy recommendations are proposed accordingly.The main conclusions of the research are as follows:First of all, OFDI has the trade substitution or complementary effects, i.e. OFDI will increase or decrease the trade volume. Theoretical research shows that the volume change to a large extent is uncertain. The increase or decrease will be influenced by OFDI industry choice, product life cycle, business ownership advantages, internal advantages, location advantages, vertical or horizontal integration, knowledge capital, technology, etc. At the same time, different OFDI motives will lead to trade volume changes, while various factors such as the factor endowments abundance, exchange rates, and economies of scale will also affect trade volume changes. Japan's OFDI brings big impact upon Japan and the host countries and regions with both the substitution and complementary trade effects, but more complementary in general. Study on South Korea also confirms the same conclusion.Secondly, OFDI will bring the transition of trade structure. Research shows that OFDI has a direct and short-term impact, but more profound, indirect and long-term impact. Japan's case study shows that such effects have both positive and negative effects.Thirdly, OFDI will have profound impacts on the distribution of trade gains. Compared to IFDI, OFDI will improve net terms of trade more effectively. Case study confirms that Japan's net terms of trade improved year by year, while South Korea appeared to improve in a specific period, and had worsened under certain circumstances.Finally, China's empirical research shows that OFDI has some promotion effects on China's export, but no impact on the import. In general, OFDI has a weak effect on the total trade. Study on China's industrial and trade structure shows that China's OFDI has some effects on the adjustment of the secondary industry, but no impact on the first and third industries. And China's deteriorating net terms of trade largely owes to big IFDI flows.Relevant policy recommendations are proposed accordingly. The market-seeking OFDI should be encouraged. Scale and revenue of the OFDI should be raised by taking the opportunity of higher RMB exchange rate. Negative effects should be avoided and industrial structure should be upgraded on our own initiative to promote marginal industry OFDI. Strategic asset-seeking OFDI should be encouraged to go to advanced countries and regions to facilitate access to advanced technology spillover through technical reverse transmission mechanism in order to promote China's domestic technological upgrading and progress. Services sector should be encouraged greatly.OFDI with safe protection of national economic development and national security should be encouraged. OFDI promotion legal system and insurance system should be established and fulfilled to decentralize and reduce investment risk. National capacity for independent innovation should be strengthened with increased investment in science and technology, More educated high-quality personnel and creation of open, tolerant atmosphere for the failure of the innovation should be encouraged. Investment policy and trade policy coordination should be strengthened to promote the healthy development of China's OFDI investment and foreign trade.