Foreign Direct Investment in China: Effects on Regional Export
Summary
This paper investigates the existence of a significant FDI-export linkage in China, using panel data at the provincial level over the 1995 to 2003 period. The theory of FDI proposes the possibility of an export creating effect. However, the empirical results show that if the model is correctly specified, there is no evidence for the existence of a significant FDI-export linkage. Because it is difficult to determine provincial exports, the emphasis is on the importance of including an instrumented lag of the dependent variable, to be able to produce a correctly specified model with unbiased estimates of the variables included. As a consequence, it may be concluded that the claims of the reference studies concerning the presence of a FDI-export linkage are not valid.