Empirical Analysis of the Relationship between FDI and Processing Trade: 1985-2008

Abstract:

Processing trade has gradually replaced the general trade, becoming China’s main trade pattern. Then, what’s the relationship between FDI and processing trade This paper, based on VAR model, by employing Granger causality test approach, impulse response function and variance decomposition, gives an empirical analysis and test of the dynamic correlation between FDI and processing trade. The empirical result denotes that there exists bilateral Granger causality relationship between FDI and processing trade. For a short period, the impact of FDI on the responsiveness of processing trade is more intense. The impact of processing trade on the responsiveness of FDI is also more intense and the volatility of fluctuations is larger; for a long period, there exists a long-run stable relationship between FDI and processing trade.

• Periodical: Advanced Materials Research (Volumes 457-458)
• Pages: 675-682
• DOI: https://doi.org/10.4028/www.scientific.net/AMR.457-458.675
• Online since: January 2012
• Authors: Xi Jun Wang
• Keywords: FDI, Granger Causality Test, Impulse Response Function, Processing Trade, VAR, Variance Decomposition

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