The Analysis Of The Correlation Of Foreign Direct Investment And Trade Balance In China

In1980s, the booming foreign direct investment (FDI) has greatly increased in developing countries and newly industrialized countries with continuously expanding speed.China has experienced volume growth and qualitative leap in foreign trade and foreign investment since the reform and opening in1978.As the foreign investment flows into China, China’s trade balance would definitely be affected.Concerning the impacts of the foreign direct investment on trade balance, presently there are three main theories among domestic and foreign scholars:first is the substitution theory of trade balance represented by Mondale; second is complementarity theory of trade balance proposed by the Japanese scholar, Kojima; third is the fusion of these two theories.This paper is based on the full analysis of the current situation of the foreign direct investment and trade balance and carries out a correlative discussion with them in a unified framework.It will present more theoretical guiding meaning to research the trade balance in the foreign direct investment view.On the basis of studying a great deal of literature and research findings and grasping the general research status at home and abroad, this paper first elaborates the research’s background, purpose, significance, contents, methods and ideas. Then further analysis is carried out about the current situation of the foreign direct investment and trade balance in China. Meanwhile, based on the detailed data in several aspects, including overall size, changing trend and geographical distribution, a great number of charts are created to show the development characteristics more intuitively and thereby reflect the impacts of the foreign direct investment on trade balance. In the following section, the transmission mechanism of the impacts of foreign direct investment on trade balance in China is interpreted from three aspects of the gateway effect, ITR coefficient analysis and technological spillover effects. By quantifying the absorptive capability of technological spillover, this paper interprets the influence of the host country’s economic level, research and development ability, communication technology, human capital, the amount of foreign direct development, etc. After the qualitative analysis of impact transmission mechanism, this paper presents the quantitative analysis with the sequential data from1991to2011, and respectively expounds the impacts of foreign direct investment on trade balance, export amount and import one. The quantized absorptive capability of technological spillover is further analyzed in the regression model. The result of empirical study shows the foreign direct investment absorbed is the significant source of China’s trade surplus and produces effects of export creation and import substitution by affecting enterprise’s business activities, industry environment and macro policy. Besides the other influencing factor of the amount of foreign direct investment, several abstract indexes such as scientific and technological level, management philosophy and absorptive capacity of technological spillover also produce significant influences on trade balance in China.Finally, after organizing the analysis of current situation and the empirical analysis, on the issues caused by the current imbalance of foreign direct investment and trade balance in China, reasonable proposals are offered in three levels of government’s macro policy, medium adjustment by industry and enterprises’ micro operations, covering policies of importing capital, trade policies, technology innovation, personnel training, etc.