The impact of foreign direct investment on China'a foreign trade : a test of Kojima's comparative-advantage hypothesis

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The impact of foreign direct investment on China'a foreign trade : a test of Kojima's comparative-advantage hypothesis

 

Author: Lee, Kit-yiu Anita
Title: The impact of foreign direct investment on China'a foreign trade : a test of Kojima's comparative-advantage hypothesis
Degree: M.Sc.
Year: 2000
Subject: Investments, Foreign -- China
China -- Commerce
China -- Economic conditions -- 1976-2000
Hong Kong Polytechnic University -- Dissertations
Department: Multi-disciplinary Studies
Dept. of Business Studies
Pages: v, 80 leaves : ill. ; 31 cm
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b1535420
URI: http://theses.lib.polyu.edu.hk/handle/200/5199
Abstract: Both FDI inflows and international trade of China have witnessed a tremendous increase after 1978. FDI seems to play a role in creating trade in that the share of FIEs in the total exports of China increased from 0.05% in 1980 to 44.06% in 1998. Nevertheless, FDI only has trade-creating effect in labour-intensive industries where China can produce comparatively in advantage. FDI has been shifting to labour-intensive manufacturing industries whose share in China's export base rose from 50% in 1985 to nearly 90% in 1998. Kiyoshi Kojima has explained such dynamic export-oriented nature of FDI: if FDI moves along the pro-comparative disadvantage line, there would be trade-creating effect in that the export of the commodity from the host country increases. Kojima's hypothesis is extended to take into account the effect of all trade partners multilaterally. Empirical study is conducted using data from the Third National Industrial Census 1995 on more than 70 industrial product categories on the effect of FDI and capital-labour ratio, a quantifiable proxy for measuring comparative advantage, on export of China. The regression results supported Kojima's hypothesis in that K/L and export are inversely correlated and a 5.16% increase in export is associated with a 10% decrease in the capital-labour ratio (i.e. higher labour input). A 1% increase in FDI would induce export to grow by 1.227%. In the coming years, investments in labour-intensive industries, as well as in land-intensive or natural resource-intensive industries in inland regions where China's comparative advantages lie would help promote export growth.

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