The Theoretical And Empirical Analysis Of The Impact Of FDI On China's Terms Of Trade

As the largest developing country in the world, China has the noticeable inward FDI and international trade these years. FDI inward in a large number, and international trade develops rapidly at the same time, how should we explain such a thing? What is the relationship between the inward FDI and international trade of China? And how does the inward FDI affect its international trade in China? This paper discussed the changes of the terms of trade in 1980-2008 from the perspective of FDI. Through such a discussion, we can know better that China should arrange the inward FDI and international trade more appropriately. First of all, we discussed the concept of the "terms of trade". After analysis the "terms of trade " people usually talked about net-barter terms of trade(NBTT),we discussed another two terms of trade-income terms of trade(ITT) and factor terms of trade (FTT).Then, we discussed three main channels, through which developing countries inward FDI affects its terms of trade:reducing the NBTT of the host developing countries volatility by improving its trade structure; improving the host developing countries'ITT by increasing its exports; and improving the host developing countries'FTT, which includes SFTT and DFTT by raising its labour productivity. At last, the paper analysis how inward FDI affects China's terms of trade. Conclusion shows:(1) We find that China, most of inward FDI comes from HongKong, TaiWan and Macao. This makes China's secular NBTT change declining from 1980,because the majority of FDI from Hongkong,TaiWan and Macao inclines to processing trade in China, which leads to low price of exports; (2) FDI promote the expansion of China's export volume effectively, Under this effect,although China' terms of trade slightly deteriorated, the export volume index rose sharply, leading to improved income terms of trade; (3) FDI improve the efficiency of China's manufacturing production by promoting technical progress. Under the promotion of FDI, China's manufacturing labour productivity index of the price rise far more than the same period the decline in the terms of trade. Therefore the SFTT improved significantly, but the impact is limited, which mean that FDI inflows can not make up the gap, so the DFTT becomes worser in fluctuations. Overall, whether from trade or from the perspective of economic development, FDI inflows are the pros and cons of both,so the FDI is not the more the better, facing g the reality of FDI rose year after year, our country must be properly control the scale of the FDI, making good use of the FDI.