A Var Analysis on Relationship of International Trade, FDI and Economic Growth in China

The role of foreign direct investment (FDI) and exports continues to be debated and tested in the literature on international economics and development economies. This paper extends the previous empirical studies on the issue by providing some evidence from time-series data period over 1980-2010 of People’s Republic of China. In this study, the dependent variables were economic growth. The model tested using unit root test, Granger causality, Vector Autoregressive (VAR) and Impulse Response Function (IRF) to analysis that dynamic relationship between economic growth, FDI, export and import. In terms of causality the result shows economic growth will provide a positive influence on the level of FDI, that is, economic growth (GDP) granger causes on Foreign Direct Investment (FDI), and there is a mutual influence between export and import because of intra-trade and imports of intermediate goods. The Vector Autoregressive (VAR) and Impulse Response Function (IRF) approach is to investigate the response of the system to economic shocks; the results showed that, the country’s economic growth is influenced by its lagged values of GDP. Finally this paper draws some policy implications for the further studies to focus on the economic growth in China, to ensure that economic growth would not be drop.