FDI Impact on China's Sectoral Performance: A Panel Cointegration and Causality Analysis

Abstract

This study provides a thorough examine the influence of FDI inflows and outflows on China's economic growth across three major sectors. Using panel data from 1997 to 2022 in China, it utilizes tests for unit roots and cointegration to investigate the enduring connection between FDI and economic growth. The research results validate the existence of a long-standing cointegration relationship between FDI and economic expansion. Additionally, this research employs the Granger causality test to ascertain the direction of causality between FDI and economic growth. The study reveals a two-way causality between foreign direct investment (FDI) inflows and overall economic growth, which supports the hypothesis of feedback causality. Additionally, there exists a one-way causality originating from FDI inflows across various sectors, suggesting that growth attracts FDI. The government should encourage foreign investment to enhance the industrial structure and boost economic growth.