Comments and Questions

The paper “The Relationship between the Chinese “Going Out” Strategy and International Trade” (by Ana Lucia Abeliansky and Inmaculada Martinez-Zarzoso) tests whether Chinese exports, imports, and outward foreign direct investment (FDI) are complements. Its innovation is that it considers all three economic flows in a single empirical framework. The focus on China is timely in light of China’s rise in the global economy.However, a couple of decisions would have deserved more explanations:- Why does the paper analyze trade in both directions (imports and exports) but looks only at one direction (outward) in the case of FDI? Given their importance for the global economy, both outward and inward FDI flows deserve more attention in the literature as their trade linkages are poorly understood.- The derivation of the hypotheses is very short. For example, I would have liked to learn why the authors expect that “China exports more to destinations where it is active in FDI.” Why don’t they expect as well that China imports more from destinations where the country is active in FDI? For example, China may invest to extract natural resources, which would be then registered as imports to China. Would it make sense to extend the hypothesis?- In which units do you measure trade and investment? US dollars? Constant or current values? No information is given in the text.- What do the variables colonial relationship, common legal origin, and common language mean in the Chinese case? More details would be helpful since China has never been (completely) colonized and it shares a common language with few countries.- Why does the sample start in 2003 and end in 2012?- Why does the analysis exclude country fixed effects? What are the consequences of this decision?- The statement that “Many have challenged the benefits of the Chinese investments in the local economies” (and similar statements). References would be helpful to guide the reader through the existing literature. While I find the results interesting, I have two major concerns about the empirical approach and the interpretation of results:- It is not clear to me why your instrumental variable (two-year lag of the endogenous variable) could satisfy the exclusion restriction. Most obviously, past investment could still affect today’s trade patterns. This calls for explanations or an alternative causal estimation strategy. That said, I also do not understand how you can run a Hansen test if you have two endogenous variables and two instruments. Maybe I misunderstand your IV approach but fear that other readers might also need more explanations.- I am concerned about the paper’s broader conclusion. The paper ends with the statement that “Chinese FDI is not that bad after all - despite being correlated to higher imports from China, it is also associated to higher exports to China.” This is a bold claim. The increase in exports to China could be driven Chinese-owned firms that employ mainly Chinese laborers without significant benefits to the local economy. Finally, a couple of extensions would have increased the reader’s knowledge gain. First, it would have been valuable to run separate regressions for services and manufacturing. At minimum, it should be clarified whether the trade and FDI data in the analysis both cover the service sector. Second, as the authors acknowledge in the conclusions, sector-specific regression would have helped the reader to learn more about the dynamics at play. Finally, the paper contains a couple of typos (e.g., “seemly unrelated gravity equations” rather than “seemingly unrelated gravity equations”). The section “4.2 Main results” should start in a new line. De Sousa (2012), Head and Mayer (2014), as well as the exact sources of the data obtained from UNCTAD, COMTRADE and WDI are not listed in the bibliography. Johnston et al. (2015), which is listed in the bibliography, is not mentioned in the main text.