The Research on Influence Foreign Trade and FDI Exert on China’s Business Cycle
|School||Ocean University of China|
|Keywords||Business Cycle Foreign Trade Foreign Direct Investment Economic Fluctuation|
The business cycle is an objective phenomenon in economic operation,and the research on business cycle is an attracting issue. The business cycle is also an important field in the macroeconomics. Drastic economic fluctuations on one side pose threat to the stability of the macroeconomics and quality of the economic growth,on the other side lead to the great negative impact. Therefore, the analysis and research on the factors which work on China’s business cycle helps to lower the negative impact of economic fluctuations.With the rapid development of economic integration and constant improvement of degree of openness in the most of countries, intercourse of the trade and financial field becomes more and more frequent. Under this kind of background, economic fluctuation is easy to take place because of external shocks through foreign trade, international capital flow and other channels. So, the research of economic cycle can not be taken only in closed environment. Focusing on the open economy, the discussion of influence on the economic cycle fluctuation from external shocks have rather important significance. Generally, foreign trade and FDI is regarded as the most important external shocks and is also the catalyst of economic growth and development of developing countries. The relations between these external shocks and economic fluctuation are always the attracting issues scholars focus on.Since reform and openness, China economy keeps the rapid growth all the time and the annual average growth rate of GDP exceeds 9% from 1979 to 2008. China develops into one of the leading industrial manufacturing bases in the world from the backward agricultural country during a short span of 30 years.And the contribution on our economic growth from FDI inflows and constant expansion of foreign trade can not be ignored. FDI not only increase the capital stock and promote the management level through overflow effects. Foreign trade can provide the vast market for the economic development and make it get rid of the constraint of market condtion. At the same time, foreign trade can also produce the technology overflow effects and stimulate economic growth. FDI and foreign trade play important roles in China’s economic fluctuations. Therefore, this paper chose FDI and foreign trade as the representative variables which influence our economic cycle fluctuation to conduct research.Based on the study of scholars at home and abroad and from the point of theoretical and empirical study, this paper analyses the impact of foreign trade and FDI over China’s business cycle using many econometric methods such as Unit Root Test, Co-integration Tests, Granger Test, Pulse-response Function and variance decomposition based on VAR model and draws the conclusion as follows:Firstly,there is a close relationship among foreign trade, FDI and business cycle. Foreign trade and FDI are the important transmission channel of the economic cycle. Secondly, the impact to economic fluctuation from foreign trade is greater than that of FDI. Thirdly, In the long time, there is fine interactive circulation among foreign trade, FDI and economic growth. When the short-term deviation from equilibrium happens, there is a self-balanced mechanism in the system.Fourthly,the active effect outweighs the negative effect which the foreign trade and FDI brings.So based on these conclusion, the systme and policy adjustment is more in line with inherent rules of economic growth which can not eliminte the economic fluctuation completely, but help to slow down the fluctuation and then improve the overall efficiency of the economic growth.Analysis of this paper help to grasp the current situation of foreign trade, FDI and China’s economy; feel out the roles of FDI and foreign trade in our economic cycle fluctuation; seek the various channels expanding trade and taking use of FDI effectively to weaken the negative impact from foreign trade and FDI and finally provide suggestions for our country in the further open to the outside world.