Trade Effects Of Foreign Direct Investment: Regional Comparison And Analysis

Since the beginning of the Reform and Opening-up, China has effectivelyattracted significant foreign direct investment. FDI plays an increasingly importantrole in China's economic development. However, the level of regional foreigninvestment in China has given rise to a serious imbalance. FDI in eastern andcentral-western regions accounts for 88.78% and 11.22% respectively of the wholecountry in 2005. Due to such regional disparities in the distribution of FDI, theregions cannot equally share the benefits of FDI towards economic development,including foreign trade development. In 2005, the eastern region's total import andexport volume of China's foreign trade accounted for 92.77%, and the central-westernregions accounted for only 7.22% of the total. The gap between the region'sdevelopments of foreign trade closely relates to uneven distribution of foreigninvestment.So far, many studies have explored the relationship between FDI and tradevolume growth. Nevertheless, little has been concerned about the regional differencesin trade-creating and trade-replacing effects in FDI. This paper aims at exploring thedifference between the impacts of foreign trade causing by the inflow of FDI on theeastern and central-western by using panel data from 1992 to 2005. Meanwhile, thepaper also analyzes the impact of foreign trade from FDI and domestic investment.The results show that the FDI to the east plays a significant role in the import andexport, and the impact of FDI is greater than domestic investment. FDI incentral-western trade effect is relatively small and the impact is less than domesticinvestment. This paper also studies the regional trade effect gap of FDI from theindustrial distribution of FDI, the source of FDI and the regional economicdevelopment level and come up with strategies for reference.