Fdi Inflows And Foreign Trade Expansion

The interaction between international trade and foreign direct investment (FDI) is one of the important issues capturing the attention from economists worldwide. There are many literatures on the issue up to present, which evidently show two drawbacks, one is that the emphasis of the most analyses is placed on the home countries of FDI, and the other is that even the emphasis is on the host countries, more research is on the relationship between FDI and the economic development but FDI inflows and foreign trade. Although in China's economic community there are many literatures on the introduction of FDI, less are about the relationship between FDI inflows and the development of foreign trade on the basis of China's experience. This paper aims to explore the economic research on the above relationship over time, and carry out empirical analysis of it based on China's experience in the latest decade.Therefore this paper is structured as follows: one part focuses on the literatures on the interaction between FDI inflows and the expansion of foreign trade with the attempt to make a brief summary, and the other part, with the above conclusions, analyzes the relationship between FDI inflows and the development and changes of composition of foreign trade, and forecasts the trend of FDI inflows and the development of foreign trade in China.This paper summarizes the economic research on the interaction between FDI and the expansion of foreign trade with normative and positive methods respectively. The summary of normative analysis is made from the aspects of international and development economics, and that of positive analysis involves the relationship between FDI inflows and the import and export of developed and developing host countries.The empirical research on China's experience aims to make analysis, which includes the analysis of macro- and micro-effects of FDI on the expansion of foreign trade in China. The analysis of macro-effects is made from the following aspects: the total volume, the composition and the balance of foreign trade. And the composition includes that of commodity trade, the trade patterns, the domestically regional and global allocation. The analysis of micro-effects involves the increase effects of foreign trade, effects of imports and exports competitiveness and effects of trade terms. What's more the paper also forecasts the trend of change on FDI and the effects on foreign trade.The analysis shows that strong interrelation exists between FDI and foreign trade in China. The change on FDI and creation effect of FDI on foreign trade is related with the change of objectives of FDI after 1992. The expansion of total volume of foreign trade and the improvement of export mix and the change of trade patterns in China benefit mainly from enterprises with FDI. In turn, the global and domestic distribution of foreign trade is related with the sources and allocation of FDI. FDI benefits theimprovement of international competitiveness of our exports, income and double-factorial terms of trade, and contributes a lot to cover funds shortages and increase foreign exchange reserves.Last but not the least, the paper forecasts the expansion effects of FDI on foreign trade in China. In view of the considerable adjustment of FDI inflow after China's entry into WTO, the paper points out that income terms of trade and foreign exchange reserves will increase considerably in short run with the adjustment of FDI after the entry into WTO, and effect of total trade volume and product competitiveness of FDI will increase but to small extent, and factor and price terms of trade will not improve, even with the possibility to deteriorate.