The Empirical Study On Relationships Between FDI, Exports And GDP In East China

It has been widely acknowledged that there is an increasing role of foreign direct investment (FDI) in China's economy, since foreign direct investments not only directly promote China's economic development, but also generally influence China's trade development, employment structure and international payment balance etc. Therefore, it has been a hot research topic about how to evaluate the impacts of foreign direct investment on China's economy and accordingly carry out certain policies. Furthermore, as China has been a formal member of World Trade Organization, there is an implicit interrelationship between China's commodity trade and international capital flows. we use time series and panel data Granger causality analysis of inward FDI, exports, and GDP simultaneously.Using time series and panel data from 1987 to 2004, this paper examines the Granger causality relations between GDP, exports, and FDI among Beijing, Tianjin, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, and Guangdong, the eight province of east China. After reviewing the current literature and testing the properties of individual time series data, we estimate the VAR of the three variables to find various Granger causal relations for each of the eight economies. We found each province has different causality relations and does not yield general rules. We then construct the panel data of the three variables for the eight economies as a group and then use the fixed effects and random effects approaches to estimate the panel data VAR equations for Granger causality tests. The panel data causality results reveal that GDP has unidirectional effects on exports directly, and there also exists bidirectional causality between GDP and FDI for the group.