An Empirical Analysis Of The Impact Of EU's FDI In China On Sino-EU Trade

As the two most important forms of international economic activities, Foreign Direct Investment (FDI) and International Trade are connected with each other more and more closely. For a long time, the debates on the real relationship of them have been being the hot topic in economics circles. Most researchers agree on the idea that the difference in many factors like motivation of FDI, market structure of host country and so on will affect the relationship of FDI and trade a lot. Today the scale of trade and FDI in China become larger and larger, so doing researches on their relationship is very necessary for FDI and trade policy making.Considering the important impact of EU on China, this thesis analyzes the relationship between the inward FDI from EU and the trade between China and EU. The study describes the characteristic of FDI from EU and trade between EU and China in details, based on such dates form 1986 to 2006. After strict stationarity test, cointegration test and granger test, this thesis adopts OLS regression methods to analyze the long-term relationship and vector error correction model to analyze the short-term relationship between the inward FDI from EU. The result indicates that, since 1986 to 2006, EU's FDI in China has mostly promoted the China's expert to EU, but doesn't have very remarkable impact on the import. Granger causality test indicates there is causality from the FDI to export.This thesis also does a research on the relationship between inward FDI from EU and trade in three different industries: primary product industry, labor intensive industry and technology intensive industry. The study has found that inward FDI from EU promoted the trade in all three industries in a positive way, which contributes more to China's export to EU in technology intensive industry than the other two, upgrading the export structure of China, increasing the technology intensive products' export ability greatly.