The Dynamic Relationship Between FDI From Japan And The Sino-Japanese Bilateral Trade Structure

The multi-national companies usually use two ways to implement their international developmental strategies: international trade and foreign direct investment(FDI). These two activities make the whole world more and more integrative and the interrelationship between them become more and more important and meaningful. The traditional theory believe there are three incentives for multi-national company to invest in other countries: market-oriented, resource-oriented and efficiency-oriented. And if the motivation is for the market and recourse of the host country, then the relation between FDI and trade is substitutable. While if it is for the efficiency, then the relation is complementary and FDI will promote the development of trade of the host country. Meanwhile the causality is si-directional or bi-directional and the direction also influence the corresponding planning and strategy's making. If export has apparent impact on FDI, then the export-oriented strategy will be carried out and the corresponding policy of export is liberty, so that the cost of trade will decrease and promote the development of trade. Alternately, then the suitable strategy will be to stimulate the FDI inflow. If there isn't any relation between FDI and export, both of the policy above will be carried out. So a good understanding of the relationship between FDI and international trade is very useful and important to make corresponding policy. And also very significant to maintain the sustainable development of economy.The substitutable and complementary relationship and thecausality is very complicated, not only because of the type of FDI and trade, but also relating to country and industry or other factors. But the conclusions of researches before are based on the database of total FDI and international trade. So it is very important and meaningful to get the conclusion based on the database of different industries and countries. The Economic ties between China and Japan have remained very close for a long time. Japan is one of the most important trade partners and main sources of FDI to China. So the interrelationship between trade and FDI in these two countries deserves careful scrutiny. But there is still lack of such kind of research now. This paper is focused on the dynamics between trade and FDI in chemical engineering products, machineries, electronics and transportation products by using Granger causality tests, impulse responses and variance decompositions based on VAR or VEC models.The results indicate that there exist different relationships between trade and FDI in different sectors: for the chemical engineering products, FDI from Japan promote the export of China to Japan, while the import from Japan and the whole export of China to the world increase the FDI from Japan; for the machinery, there is not apparent relation between FDI and trade of China and Japan, but the FDI from Japan improve the increase of export of China to the world; for the electronics, the increase of export of China to the world attracts more FDI from Japan, and the FDI increase the export from China to Japan; for the transportation industry, the FDI from Japan increase the import from Japan and the whole export of China to the world, but decrease the export to Japan. From the above conclusion, the interrelationship is more clear and it must be very helpful for making the policy of FDI and international trade between Japan and China.