You are here

Causal Links between Foreign Direct Investments and Trade: A Comparative Study of India and China

Journal Name:

Publication Year:

Author NameUniversity of Author
Abstract (2. Language): 
Global economic environment is changing rapidly during the last two decades. This change is reflected in widening and intensifying international linkages in trade and FDI. Various countries are now favouring economic reforms for attaining rapid and sustained growth. The scope for transnational production has expended due to reduction of the barriers to international trade and the various regional integration agreements between the different countries. This paper examines the causal relationships between FDI and trade (i.e Exports and Imports) in India and China. Granger causality test has been employed to examine the causal relation between FDI and trade by using the data over the period of 1976-2011.The results for China show unidirectional causality running from FDI to imports and FDI to exports, however, there exist bidirectional causality between imports and exports. India gives the results which are not similar to China where bidirectional causality between FDI and imports; FDI and exports; and exports and imports have been found.



Chopra, C. (2003), Foreign Investment in India(Ist ed.), Deep and Deep Publication, New
Chowdhary, A. and Mavrotas, G. (2003), “FDI and Growth What Causes What”, presented at
the WIDER Conference on “Sharing Global Prosperity”, held on 6-7 September, 2003, Germany.
Dash, R.K. and Sharma, C. (2010), “Does Causality between FDI and Trade Exist: Evidence from
South Asia”, International Journal of Trade and Global Markets, 3(4)390-413.
Gujrati, G., (2004), Basic Econometrics (4th ed.), MC Graw Hill, New York.
Iqbal, M. S, (2010), “Causality Relationship between Foreign Direct Investment, Trade and
Economic Growth in Pakistan”, Asian Social Science, 6(9): 1-15.
Jayachandran, J. and Seilan, A. (2010), “International Research Journal of Finance and
Economics” A Causal Relationship between Trade, Foreign Direct Investment and Economic
Growth for India (42): 1450-2887
Karliner, T. (1997), “A VAR Approach to the Economics of FDI in China”, Applied Economics,
34(7): 431-445.
Liu, G.S.; Liu, X. and Wei, Y. (2001), “Openness and Efficiency of India and China Relative to
the World Economy”, Public Policy Discussion Papers No. 02-18, Brunel University, U.K.
Liu, X. and Shu, C. (2001), “Determinants of Exports Performance and the Effects of the WTO
Entry on Labour Intensive Exports: Evidence from China’s Manufacturing”, http//:
cisinfo/ Accessed on 15th Aug. 2007.
Liu, X.; Wang, C. and Wei, Y. (2002), “Causal Links between Foreign Direct Investment and
Trade in China”, China Economic Review, 12(2):190-202.
Lui, Song, Wei and Romilly, (1997), “An Empirical Investigation of the Casual Relationship between
Openness and Economic Growth in China”, Applied Economics, 29(2):1679-1686.
Pradhan, J.P. and Abraham, V. (2004), “Attracting Export Oriented FDI: Can India Win the
Race?”, Working Paper No. 156, Gujarat Institute of Development Research. Gota, Ahmedabad.
Sharma, K. (2000), “Export Growth In India: Has FDI Played A Role?” Center Discussion Paper
No. 816., Assessed on Feb. 2011.
Renu SHARMA & Mandeep KAUR
Page | 90 EJBE 2013, 6 (11)
Sharma, K. (2003), “Factors Determining India’s Export Performance”, Journal of Asian
Economies, 14(2): 435-446.
Tedesse, B. and Ryan, M. (2001), “The FDI-Trade Relationship: Are Developing Countries
Different?” in Does FDI Promote Development, edited by Theodore, H. M; Edward, M.G. and
Magnum, B., Institute of International Economics and Centre for Global Development,
Washington, D.C., 136-148, (3rd ed.).
Tian, W. and Yu, M. (2011), “China and India: Trends in Trade over the Last Decade”, The
Journal of China and Global Economics, 1(1): 27-38.
UNCTAD, (1978 to 2009), “World Investment Report” United Nations Conference on Trade
and Development, New York and Geneva.
UNCTAD, (1996 and 1999), “World Investment Report” United Nations Conference on Trade
and Development, New York and Geneva.
UNCTAD, World Development Indicators Data Base, (2005-06, 2007-08 and 2008-09), United
Nations Conference on Trade and Development, New York and Geneva.
Zhang, K.H. and Song, S. (2000), “Promoting Exports: The Role of Inward FDI in China”, China
Economic Review, 11(4): 385-396.
Zhang, Q. and Felmingham, B. (2001), “The Relationship between Inward Direct Foreign Investment
and China’s Provincial Export Trade”, China Economic Review, 12(1): 82-99.

Thank you for copying data from