Emprical Study The Effects Of Foreign Direct Investment On International Trade Based On The Gravity Model In China

The foreign direct invest (FDI) and International trade are both important international economics relationship. Traditionally, FDI and International trade are looked as two different economics phenominon and researched separately. But with the deeply increasing of economy globe, this relationship of FDI and trade is more and more intensive, which characters are creation and complementarity for each other. Since revolution and opening, the development of FDI is enough quick in China, especially, since 1990's, the scale of inflow FDI is increasing quickly. Now China is one of the most absorption investment countries. At the same time, the number of international trade is also increasing quickly, which accounts for more thousand billion dollars, and China is the third trade country in the world. The paper is to reseach the rade creating/replacing nature of FDI of different home countries in China. So the paper needs to solve two basic questions. One of the questions is whether inflow FDI is trade creating or trade replacing in China. The other is whether there is a spatial variation in the trade creating/replacing nature of FDI of different home countries in China.So the paper applies gravity model and selects the data from 1992 to2003 of foreign direct investment (FDI), exportation and importation from thirty-sevencountries and districts to China. The method of panel-data model is used to empirically analyze the creation relationships between FDI and exportation, importation. On the basis of the empirical analysis, the paper results in the spatial variation in the trade affinities and the trade creating nature of FDI of different home countries and districts. According to the spatial variation in the trade affinities, the paper addresses that the Internatioal market may be divided three sorts, which are the trade potential recreating market, the trade potential developing market, the trade potential giant market. After the paper discusses the trade creating process of FDI, it also results in that the quality of FDI is more important than the quantity of FDI, and at the time of develping international market, the trade policy should be established on the above three international market.