The dynamic relationship between trade openness, foreign direct investment, capital formation, and industrial economic growth in China: new evidence from ARDL bounds testing approach

This research investigates the long- and short-run dynamic relationships between China's trade openness (TRO), foreign direct investment (FDI), capital formation (K), and industrial economic growth (IEG) using annual data from 1990 to 2021 and the Autoregressive Distribution Lag (ARDL) method. ARDL co-integration tests reveal a long-run co-integration relationship among these variables. Both long- and short-run analyses show positive effects of TRO, FDI, and K on IEG, supporting a feedback hypothesis. However, in the short-run, TRO and K show small, statistically insignificant negative effects on IEG. K and TRO positively affect FDI, while FDI negatively affects K, although minimally and insignificantly at the 10% level in the long run. These findings suggest that technological innovation within the trade, investment, and capital system can stimulate China's industrial economic development.

Yuanyuan Hao