Trade, FDI and Economic Growth in China: 1982-2017

This paper studies the causal relationship between external trade, investments and economic growth in China. A four-variable vector autoregression (VAR) is used to examine the statistical causal relationships between exports, imports, foreign direct investment (FDI), and economic growth using annual data from 1982 to 2017. We analyze Granger causality, impulse response functions and variance decomposition. All three tests confirm the bidirectional causality between economic growth and exports. We find that FDI arrived in response to exports and that both exports and economic growth explain the increase in imports. These causal relationships are related to the specific case of the opening of China.