Empirical Analysis on FDI and Provincial Bilateral Trade Flow Based on Gravity Model

This paper examines the relationship between FDI and the provin-cial international trade with trade gravity model,and empirically studies the bilat-eral trade panel data of China’s 30 provinces and 26 countries or regions in 2007.The results show that the FDI and international trade are complementary.From the point view of three economic regions,the elasticity of FDI on interna-tional trade in the east is the biggest,followed by the middle and the west.The vertical trade system based on the endowment difference of resources has en-hanced the investment of FDI in China.Furthermore,the trade modes of each province and region depend on the economic scales of both parties in the bilater-al trade and their geographical distance.The size of bilateral trade flow is posi-tively related with each party’s economic aggregates,the geographical distance(transportation cost) constitutes the hindering factor to the trade between two par-ties,and geographic location is an important factor that blocks the development of international trade in the middle and western regions.