The relationship between inward direct foreign investment and China's provincial export trade

This study evaluates the causal links between inward foreign direct investment (FDI) and exports from the PRC as a whole and also from its provinces. The national study is based on a monthly time series for the years 1986 to 1999 and cointegration/error correction modelling (ECM) techniques are used to conclude that for the PRC as a whole the relationship between FDI and exports is bidirectional. The relationship between inward FDI/exports for the PRC's provinces, cities, and autonomous regions is analysed in three panel data sets: the high FDI recipients (HFDI, n=144) concentrated along the Chinese coast, medium FDI recipients (MFDI, n=192) in Central China, and the low FDI group (LFDI, n=128) in Western China. The panel data studies reveal that in the HFDI and LFDI, bidirectional causality applies, while exports Granger cause FDI in the MFDI. All regional results are confirmed by Sims tests. The policy implications are explained. © 2001 Elsevier Science Inc.