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The Impact of China's OFDI on Bilateral Trade Complementarity: The Role of the Belt and Road Initiative

【Authors】
MAO Hai'ou, LIU Haiyun
【WorkUnit】
MAO Hai'ou (Wuhan University, 430072)LIU Haiyun (Huazhong University of Science and Technology, 430074)
【Abstract】

Improving the degree of trade complementarity (TC) between China and the Belt and Road countries would help the regional economic integration. This paper, based on the TII model, finds that there exists the comparative advantage mechanism and the country-pair trade deflection mechanism via which OFDI influences TC. Furthermore, BRI could play the role of catalyst in TC. By using the panel data of 78 countries from year 2005 to 2016, we test the hypothesis empirically. The conclusions are as follows: (1)China's OFDI improves the bilateral TC and has significant positive effects on the country-pair trade deflection mechanism; (2)OFDI from China to the Belt and Road countries could significantly improve bilateral TC, but with no significant result for other countries; (3)After BRI was unveiled, the positive effect of OFDI on TC is highly improved and the country-pair trade deflection mechanism becomes more prominent; (4)Through constructing the regional production network, OFDI could enhance the country-pair trade deflection. Our research is of value for improving the TC between China and Belt and Road countries and deepening the regional economic integration.

 

JEL:F14, F15, F23

【KeyWords】
Outward Foreign Direct Investment, Trade Complementarity, Belt and Road Initiative, Regional Production Network