Research On Trade Effects Of China’s OFDI Based On Host Countries Of Different Economic Levels

After China’s accession to WTO, economy, trade and foreign direct investment in China have a rapid growth. In2012, the volume of cargo trade imports and exports of China hit a record high, the total number of which reached$3866.98billion. Affected by European debt crisis, economy got a downturn all around the world, including both developed countries and emerging market countries, the overall economic downturn in the international market. Therefore the global outflows of foreign direct investment decreased by17%compared to last year’s. However, China’s foreign direct investment outflows amounted to$87.8billion, which is the highest value in the calendar year and achieve an increase of17.6%, the non-financial foreign direct investment growth of28.6%.As two important ways of foreign economic development, there is an intrinsic link between foreign direct investment and trade. Research on foreign direct investment and trade relations started from Mundell(1957) who consider foreign direct investment can substitute completely trade based on the flow of mutual elements. However, there are different points of view which hold that there is a complementary relationship between them such as transfer theory proposed by Kojima, or a contingency relationship due to the characters of the invested industry and trade classification. Based on this rationale, various scholars use many data from different countries, different industries and different periods to make an Empirical analysis. With the rapid development of emerging economies, foreign direct investment in China which is the representative of the developing world also present a rapid growth trend. However, researches tend to pay more attention to the developed countries’s outward foreign direct investment. Domestic analysis is also study the relationships based on different time series or panel data and models in different periods of China’s foreign direct investment, and get different conclusion such as foreign direct investment promote the role of trade or contingency action, or foreign trade is a result of foreign direct investment Granger.This paper aims to study the trade effects of China’s outward foreign direct investment on basis of foreign direct investment theory and trade theory. It Use the Panel Data that Chin’s outward foreign direct investment to the countries in different level of economic development from2003to2012, as well as the gravity model to make an empirical analysis about how outward foreign direct investment flows and stocks effect the trade in goods. This paper also classify host countries in two types, developed countries and developing countries to make a more detailed study. It concludes that China’s outward foreign direct investment have an positive effect on goods trade. And this effect is different when the host country’s levels of economic development is different. The influences will be greater in developing country. Then analyse the factors that influence this relationship such as scale factors, structural factors, and motivation factors, so China can made different strategies when China invest in developed countries or developing countries according to that conclusion, while we should pay more attention to the development of China’s foreign direct investment effects on trade.