Discussion Paper

No. 2018-20 | February 19, 2018
The relationship between the Chinese ‘going out’ strategy and international trade
(Published in Special Issue FDI and Multinational Corporations)


This study is the first to estimate a system of simultaneous gravity equations for Chinese exports, imports and foreign direct investment (FDI) using a sample of 167 countries over the period 2003–2012. The main results indicate that trade and outward FDI are complementary. In particular, the authors show that outward Chinese FDI is related to higher exports and imports and that China trades more with countries hosting Chinese FDI. Results are also robust to the use of instrumental variables. Therefore, the popular claim that Chinese investment could be detrimental for developing countries is not supported by the data.

JEL Classification:

F14, F21, F59


  • Downloads: 200


Cite As

Ana Lucia Abeliansky and Inmaculada Martínez-Zarzoso (2018). The relationship between the Chinese ‘going out’ strategy and international trade. Economics Discussion Papers, No 2018-20, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2018-20

Comments and Questions

Oliver Morrissey - Validity of conclusion
February 21, 2018 - 17:47

The gravity analysis is fine in demonstrating the link between Chinese OFDI, exports to and imports from African countries. This does not however establish that Chinese FDI and trade are a significant benefit for African countries, or at least does not counter the types of criticisms in the literature. The ...[more]

... conclusion that Chinese FDI is 'good for Africa' (or that the limitations on benefits are invalid) is not justified by the analysis.

To the extent that the relationship relates to FDI and trade in mineral resources, the contribution to economic development may well be limited (for a range of reasons established for Africa, not only with China). FDI in manufacturing may be beneficial but demonstrating that it is requires evidence on local linkages (including ownership) and input demands (which may be largely sourced from China), and whether production is for export (is any back to China) or the local/regional market (which may displace African firms). The criticism of Chinese FDI is that it is tied to Chinese firms (ownership), inputs (imports) and even labour, so the potential benefits for the host economy are minimised. The analysis in the paper is unsuitable to address these issues (for which a gravity model is not informative) so the conclusion should avoid unjustified inferences.

Henning Mühlen - Why the strong focus on Africa?
March 07, 2018 - 14:10

In principle, I agree with you that there are unjustified inferences. But, I don't understand the strong focus on Africa in your comment as there are 167 partner countries included. The comment suggests that the paper is only about China-Africa relations.

Oliver Morrissey - clarification
March 08, 2018 - 11:25

To clarify, I meant the inference was not justified for China-Africa. Circumstances are different for other regions, although the general point of inference applies.

Inmaculada Martinez-Zarzoso - Answer to Oliver Morrissey - Validity of conclusion
March 08, 2018 - 14:03

Many thanks for your comment. We agree with your statement that the links shown in the estimations between FDI and trade do not necessarily translate in a benefit, in terms of economic growth, for African countries. We will acknowledge this fact in the revised version of the paper. Concerning the ...[more]

... sectors or industries involved, since the analysis is done for aggregate trade and FDI, we are not able to differentiate between FDI in mineral resources and manufacturing industries. We will modify the abstract, introduction and conclusions of the revised version of the paper to avoid unjustified inferences. Moreover, we will refer to Amendolagine et al (2013), Boly et al. (2015) and Coniglio et al. (2017) and Morrissey (2011) and mention that to identify the contribution to economic development of increasing links between FDI and trade between Africa and China using input-output linkages is outside the scope of the paper and is left for further research.
Amendolagine, Vito, Amadou Boly, Nicola Daniele Coniglio, Francesco Prota and Adnan Seric (2013) FDI and Local Linkages in Developing Countries: Evidence from Sub-Saharan Africa, World Development 50, 41-56.
Boly, Amadou, Nicola D. Coniglio, Francesco Prota and Adnan Seric (2015) Which Domestic Firms Benefit from FDI? Evidence from Selected African Countries, Development Policy Review 33 (5), 615-.
Coniglio, Nicola D., Rezart Hoxhaj and Adnan Seric (2017) The demand for foreign workers by foreign firms: evidence from Africa, Review of World Economics 153, (2), 353-384.
Morrissey, O. (2011) FDI in Sub-Saharan Africa: Few Linkages, Fewer Spillovers, The European Journal of Development Research 24, 26-31.

Henning Mühlen - Comments
March 07, 2018 - 13:53

From my point of view, the topic is relevant and the approach is appropriate in general. However, there are some concerns.

1) There are critical aspects regarding the estimation equations (1 to 3).
-The regional dummies: When introducing these dummies, it is not clear how a region is ...[more]

... defined. Subsequently, it becomes clear that a region refers to a continent. It is stated that the regional dummies “account for multilateral resistance factors”. This aspect is associated with two strong assumptions. (i) The multilateral resistances do not vary within a region. In the given case where a region covers numerous countries it is very likely that this assumption does not hold. Finally, this may bias your estimates of interest. To address this problem the authors could instead include time-invariant dummies at the “j” level (partner country level). Doing that, the equations will be reduced to an expression where Dist, Colony, Comleg, and Comlang are excluded. However, these are not the variables of interest. (ii) Given that the regional dummies are defined as time-invariant factors, the multilateral resistances (of regions) are assumed to be constant over time. I doubt that. Regarding the given data structure, it won’t be easy to overcome this problem. At least, one should discuss this issue critically.

-“Dist” should be indexed with a “j” only since it stands for the time invariant geographical distance.

2) I agree with Oliver Morrissey regarding the criticism of particular parts in the conclusion. What can be concluded from the gravity estimations is that there is a link between FDI and trade. However, based upon this the authors state that “Chinese FDI is not that bad after all” (or in the abstract “Therefore, the popular claim that Chinese investment could be detrimental for developing countries is not supported by the data.”). These are indeed unjustified inferences.

Inmaculada Martinez-Zarzoso - Response to Henning Mühlen
March 08, 2018 - 14:07

We appreciate comment (1); we will give the definition of regional dummies earlier in the paper. Thanks also for comment (i); we will take it into account for the revision of the paper. We considered the specification with continental dummies because we wanted to retain the cross-sectional variation of ...[more]

... the data, which will be washed away if the approach you suggest is used.
We agree with your comment (ii), that we consider MR of regions constant over time, and a discussion of this issue will be added to the revised version of the paper, thanks. Finally, we will revise the conclusion to avoid unjustified references.