Causal links between foreign direct investment and trade in China

This paper examines the causal relationship between foreign direct investme nt (FDI) and trade (exports and imports) in China. The empirical study is b ased on a panel of bilateral data for China and 19 home countries/regions o ver the period 1984-1998. Econometric techniques for panel data are applied to test unit roots and causality. The results indicate a virtuous procedur e of development for China: the growth of China's imports causes the growth in inward FDI from a home country/region, which, in turn, causes the growt h of exports from China to the home country/region. The growth of exports c auses the growth of imports. The results have important policy implications . (C) 2001 Elsevier Science Inc. All rights reserved.