Remedy or Poison: Impacts of China's Outward Direct Investment on Its Exports

During the past decade, China's outward direct investment (ODI) and exports have experienced rapid growth, drawing increasing attention to the relationship between them. Using the gravity model based on panel data on China's ODI and trade to 174 countries and regions during 2003-2012, the present paper investigates the impacts of China's ODI on exports. We find that China's ODI to a host country significantly promotes China's trade with that economy: a 10-percent increase in ODI stock can lead to a 2.14-percent increase in exports, a 2.07-percent increase in imports and a 2.87-percent increase in net exports. The scale of the host country's economy, its infrastructure and its distance to China also have significant impacts on China's exports. Therefore, growth in ODI will facilitate China's trade and integration into the global economy, and enhance industrial upgrading in China by transferring the low-end industries abroad.