A Study in China's FDI-inflow and Trade Based on Gravity Model

These paper first sets up a theoretical framework of trade effect of FDI,and introduces the regional trade arrangement and FDI into the gravity model,followed by an empirical investigation of trade and investment using a panel data set of China and other main investment countries through 1986-2010.The results show that FDI,the size of economy,similarity of the market size,and heterogeneity of the national economy are significant determinants of trade flow.The distance factor is not significant statistically.Instead,we found that regional trade arrangement and trade are correlated.In order to maintain a continued growth of China's trade,fostering domestic market and strengthening opening and trade liberalization are essential.