The Relationship Between Trade And Foreign Direct Investment:Empirical Results For China And Vietnam

Trade and foreign direct investment (FDI) are principal strategies to access foreign markets. As the world becomes increasingly interdependent, under the trend of global economic integration, the linkages between these two strategies become increasingly important.As economic interdependence in the Asia-Pacific region has grown noticeably stronger over the past few decades, manifested by rapid expansion of commodity trade and foreign direct investment (FDI). Since Vietnam launched its Open Door Policy in the period of renovation, it has actively sought to use international trade and foreign investment for its economic development objectives. Vietnam significantly strengthened its trade relations with Asian countries in the early1990s, including China. Especially form the late2000s, China’s FDI flow into Vietnam and Vietnam’s trade with China have been rapidly increasing, but the causal relationship between China’s FDI flow into Vietnam and Vietnam’s trade with China could not be found, contrary to expectations. So this study tries to find the causal relationship between bilateral China’s FDI flow into Vietnam and Vietnam’s trade with China using macroeconomic data and derive policy implications for regional integration.The main content of this paper includes five parts. The first part is the introduction about research background, research signification, theoretical review, basic framework, research methods, thesis’s content and research innovation also inadequate points. The second part introduces theories of the linkage between FDI and trade. Firstly, introduce some theories related to international direct investment; secondly, theories in three aspects: the substitution relation between FDI and international trade, the complementary relation between FDI and international trade, introduces some classical theory; finally issome relevant research related to this topic. The third part analyzed current China’s FDI flow into Vietnam and Vietnam’s trade with China. This part includes three aspects:the first one is the present scale of China’s FDI flow into Vietnam, investment subject, investment industry and methods of investment. The second one is analysis of characteristic of trade between Vietnam and China. The last one is analysis of existing problems and prospects about China’s FDI flow into Vietnam and Vietnam’s trade with China. The fourth part is the empirical analysis, core of this paper, which divided into three parts:(1) descriptive statistics;(2) correlation test;(3) analysis of test results. This chapter quotes econometric model running on Eviews7.0test system to study the relationship between China’s FDI flow into Vietnam and Vietnam’s trade with China. The fifth part is the part of conclusion. In this part I suggests some polices to optimizing China’s FDI flow into Vietnam and trade between Vietnam and China.My empirical.results show that China’s FDI flow into Vietnam and trade between Vietnam and China was the long-term equilibrium and complementary relationship of mutual promotion. China’s FDI flow into Vietnam has effected by Vietnam’s export to China more deeply than by Vietnam’s import from China. Also, there is a two-way causal Grainger relationship between China’s FDI flow into Vietnam and Vietnam’s import from China. The empirical results show that the development of trade between China and Vietnam and China’s FDI flow into Vietnam are beneficial to both sides.