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The Effect of Foreign Direct Investment on China’s Export Trade

Author: XuZuo
Tutor: MuLiangPing
School: Southwestern University of Finance and Economics
Course: World economy
Keywords: Foreign Direct Investment Structure of Export Commodities Processing Trade Competitive Ability of Export Foreign-invested Enterprises
CLC: F752.62
Type: Master's thesis
Year: 2010
Downloads: 1166
Quote: 2
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Abstract

With the continuous deepening of economic globalization, the international direct investment taking trans-corporation as carrier is very active in the world, which has made foreign direct investment (FDI) demonstrating more and more obvious inter combination trend with international trade. Our country has attracted a large number of FDI with investment environment improved. Meanwhile, export trade is developed rapidly too. The average annual rate of increase is up to 17.88% since reform and opening-up. The statistics of our country and positive research indicate that FDI can promote export effectively.However, the increase in the number does not mean that the quality has improved. In China’s exports, the level of manufactured goods is low, the proportion of labor-intensive products is too large, and lack of core competitive ability. The pattern of export trade takes processing trade as the core. Its technical level is not high, and the related degree of industry is small. It is susceptible to the impact of the world economic situation. The processing trade exports decreased significantly, especially since the global financial crisis broke out. Therefore, it is necessary to specify the measure of foreign direct investment on the economic effects of China’s export trade, and thus for rational policy-making, effectively attract foreign investment and promote the development of export.As many scholars who study aspects of export volume has proved that FDI gives impetus to the increase in exports, this thesis is only to analyze two aspects in the export structure and export trade pattern. In addition, in view of the fact that the empirical analyses of related literatures are few and not comprehensive, this thesis attempts to be thorough in this regard.This thesis has widespread collected data and materials, combined qualitative analysis with quantitative analysis, unified the canonical parse and the empirical analysis. Then it tried to study the influence that FDI affected on the export commodities and export trade patterns. At last, it found out the question where these two aspects exist, and put forward the countermeasure proposal. This thesis consists of six chapters. Chapter one outlines the background, content and idea of the thesis.Chapter two describes the main theoretical of international direct investment and international trade, and the relationship between them, which lays the theoretical foundation for the following analysis. The first part introduces the substitution relations theory, the supplementary relations theory and the compensation relations theory. The three kinds of theories have explained the impacts of international direct investments over international trade in different situations. And the supplementary relations theory and the compensation relations theory can explain the act of various countries’ direct investment and trade better. The second part analyzes the impact of FDI on host countries exports, which quotes the views of M. Blomstrom.Chapter three undertakes an overview of earlier theories. It introduces the basic situation that our country has absorbed FDI and developed export trade since reform and opening-up. This chapter describes the export from the three aspects of export scale, commodity structure and trade pattern. With the extent of China’s opening up gradually expanded, foreign investment continued to grow, which had a profound impact on our export trade. From the overall size of the point of view, total exports showed a significant increase in the potential, during which there is the promotion of foreign-invested enterprises. From the structure of commodities, our country has achieved the major changes from exports primary products mainly to export industrial products mainly. From the patterns of export trade, accompanied by the influx of foreign-invested enterprises, processing trade has developed vigorously. It has occupied the dominant position in the export since 1995.Chapter four uses the method of empirical analysis to research the structure of export commodities from the aspects of FDI and foreign-invested enterprises. Regression analysis shows that foreign direct investment has a promotion effect both on the primary products export and the industrial products export. It has a better effect of the latter led, because the proportion of foreign direct investment on the industrial products is bigger than it on the primary products. Subsequently, this chapter introduces the trade competitive index to analyze the competitive ability of export of industrial products, electromechanical products and high-tech products. Then it studies the contribution that the FDI has made to the structure of export commodities from the perspective of foreign-invested enterprises, and reaches a conclusion that foreign-invested enterprises have optimized our export commodity structure while they promote exports in their own advantages.Chapter five discusses the influence that the foreign direct investment has made on our export trade pattern. Firstly, it compares the effect that foreign direct investment has on general trade export with processing trade exports by regression analysis. Result of empirical analysis shows that foreign direct investment can give more explanation of the changes in processing trade exports. Secondly, it compares the influence that FDI has on the competitive ability of export of trade pattern. Then the thesis concludes that foreign direct investment does not have the promoter action to the general trade’s competitive ability of export, and has a little promotion on the competitive ability of export of processing trade. Subsequently, this chapter has been innovative on making changes in the structure of the revealed comparative advantage index, in order to reflect the comparative advantages of foreign-invested enterprises’processing trade.Chapter six is the key point of this thesis, which is based on the conclusion of chapter four and chapter five. In this chapter, the author points out the problems that exists in the structure of export commodities and the processing trade when we takes uses of foreign direct investment, and puts forward the corresponding countermeasure proposals. In the structure of export commodities, our country should guide the foreign capital to flow to the high-tech industry and the advanced manufacturing industry, in order to improve the grade of industrial products; increase exports of high-tech products through independent innovation; Strengthen the multi-control to reduce the export of high-pollution, high-consumption, high-energy. In processing trade, our country should develop high and new technology, in order to improve added value of products and enhance industrial radiation; adjust the structure of products and industrial to promote transformation and upgrading of processing trade; develop overseas processing trade to reduce trade friction with developed countries, and change the disadvantaged position of our processing trade.

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