Function simulation of FDI, foreign trade and regional GDP in China

Published date03 October 2008
Date03 October 2008
DOIhttps://doi.org/10.1108/17544400810912383
Pages232-243
AuthorLiu Ying,Cui Riming
Subject MatterEconomics
JCEFTS
1,3
232
Journal of Chinese Economic and
Foreign Trade Studies
Vol. 1 No. 3, 2008
pp. 232-243
#Emerald Group Publishing Limited
1754-4408
DOI 10.1108/17544400810912383
Function simulation of FDI,
foreign trade and regional GDP
in China
Liu Ying and Cui Riming
College of Economics, Liaoning University, Shenyang,
People’s Republic of China
Abstract
Purpose – The purpose of this paper is to simulate the function of foreign trade, foreign direct
investment (FDI) and regional gross domestic product (GDP) in China, explore how these two
variables affect regional GDP together and provide evidence to export-led growth (ELG) and FDI-led
growth.
Design/methodology/approach – Artificial neural network (ANN) is introduced in the model.
This nonlinear and adaptive computation obtains a three-dimension function that is different from
linear models.
Findings – New evidence was found for ELG and FDI-led growth with data of 28 regions in China in
the period of 1994-2005. The simulation reveals that with foreign trade and FDI scale varying,
marginal GDP in different Chinese regions is positive. Because of the nonlinear system, a wave
pattern of marginal GDP was found and an optimal scale of foreign trade and FDI for Chinese
regions. Results in the simulation also indicate the possibility of economic deconcentration in some
Chinese regions.
Originality/value – New evidence is provided for ELG and FDI-led growth. Different from
conventional methods, ANN model as a nonlinear system is introduced in the study in which optimal
scale of foreign trade and FDI for Chinese regions is obtained.
Keywords International investments, Foreign trade, Gross domestic product, Neural nets, China
Paper type Research paper
1. Introduction
The possibility of foreign tr ade and foreign direct investment (FDI) being engines of
growth has motivated a growing theoretical and empirical literature on the topic . The
links between foreign trade, FDI and regional economic growth have been research
hotspots for decades. There are many discussions on the proposition about expo rt-led
growth (ELG) and FDI-led growth. Borensztein et al. (1998) developed an economic
growth model to show the endogenous growth of FDI recipient economy, and their
study reveals that the long run growth rate is a function of FDI. Concer ning the
empirical aspect, many mathematical models have been exploited to examine the
proposition. Data from different countries and regions are analyzed. Some results are
against the proposition while most of the results are for it. Dollars (1992) supports the
ELG proposition by analyzing data from 92 countries in the period of 1976-1985.
McNab and Moore (1998) studied data of 41 developing countries in two periods during
1963-1973 and 1973-1985 to support ELG. Balassa (1978) investigated the relationship
between exports and economi c growth in developing countries with rank co rrelation
coefficient test, the result supports ELG. Maizels (1963), Feder (1982) and
Balasubramanyam et al. (1999) hold the same viewpoint in their research.
Generally, empirical approaches in former studies about this topic fall into three
categories: correlation coefficient test, ordinary least squares in regression analysis and
time series and panel data model. These approac hes require consistency and
stationarity of data. In this paper, we introduced an advanced data mining technology,
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