The Study Of Effect Of German Direct Investment In China On Bilateral Trade

In the context of economy globalization, the relationship between direct investments and trade are receiving extensive attention. Since 1990s, China has attract the most foreign investments among developing countries;FDI plays a significant role on every aspects. As a most important international direct investment exporter and the biggest trade partner in EU,Germany has a non-negligible effect on Chinese trading.In recent years, there has been prolific research and results on the interplay of international direct investment and international trade. Meanwhile, a nation-specific analysis is still lacking from the microscopic viewpoint, not to mention the studies on bilateral trade.Based on trade and investment theory of academic predecessors, this work aims at the effect of Germany direct investment on bilateral trade. After a brief review of related theory and literature, models are proposed with application of co-integration analysis,to analysis the investment effect on trade amount,trade structures and the terms of trade between China and Germany. We draw a conclusion that German direct investment is positive to the trade amount,the index of trade structure and the income terms of trade but negative to the net barter terms of trade between these two countries. Based on this conclusion, several issues are forwarded regarding this investment effect. To conclude, we propose that in order to overcome these negative effects, measures should be taken such as enforcement of new policies and improving industrial atmosphere and etc.