What Drives Foreign Direct Investment Inflows in China? ARDL Bounds Test and ECM Approach

Authors

  • Aderemi Timothy Ayomitunde
  • Abalaba Bamidele Pereowei
  • Olawale Awe

Keywords:

GDP per Capita; FDI Inflows; Market Size

Abstract

This paper examines the variables that drive foreign direct investment in Chinese economy.
Recent past studies have shown conflicting results which make further study on this subject matter
imperative in the recent times. Data were collected from the United Nations Conference on Trade and
Development and World Bank Indicator from 1990– 2017 and the study employed the Autoregressive
Distributed Lag (ARDL) model and Error Correction Model (ECM) to address its objective.
Consequently, the major findings that originated from the work could be submitted as follows. The
result of ECM term confirmed that about 19% of the total disequilibrium in the previous year would
be corrected in the current year. Meanwhile, the principal drivers of FDI inflows in China are the
large market size and impressive growth rate of the economy. However, GDP per capita could not
derive FDI inflows in China. Based on the findings that emerged in this work, it is mandatory this
paper makes these recommends for both the policy makers and the future researchers in China that
whenever sporadic inflows of FDI is the target of the policy makers in this country, the Chinese
government should manipulate the market size and growth rate of its economy.

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Published

2020-05-26

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Section

Business Administration and Business Economics