FDI AND INTERNATIONAL TRADE BETWEEN THE EU AND CHINA

Abstract

Background and Objective: The relationship between FDI and trade has long been the subject of much economist research. However, many theoretical and empirical studies have not reached a universal and definitive conclusion. The prevailing view is that there may be substitution, complementarity and ambiguity between the two. The scientific goal of the article is to explore the relationship between China’s FDI and trade with the European Union (EU) and to examine whether it is complementary or substitute. Materials and methods: The paper selects China’s imports and exports from the EU and China’s total direct investment in the EU from 2005-2020 and utilises quantitative analyses. The co-integration analysis and Granger causality test analysis were conducted in this paper. Results: It can be concluded that there is a stationary linear combination and long-term equilibrium relationship between Chinese FDI to the EU and trade with the EU. At the same time, Granger causality tests revealed a bidirectional causality relationship between China’s FDI and trade with the EU. Practical implications: This paper provides information on the relationship between investment and trade when developed regions receive investment from a developing country. The study shows that Chinese investment in the EU and China-EU trade are mutually reinforced. Conclusion and summary: Chinese direct investment in the EU and China-EU bilateral trade interact with each other. A complementary relationship was found between China’s FDI and trade with the European Union.

Keywords

• International trade
• FDI
• cointegration test
• exports and imports