Outward foreign direct investment and economic growth in China: evidence from asymmetric ARDL approach

    Usman Ali Affiliation
    ; Wei Shan Affiliation
    ; Jian-Jun Wang Affiliation
    ; Azka Amin Affiliation


The current study explored the dynamics between economic growth and overseas investment, using time series annual data from China. For empirical analysis, we utilized asymmetric ARDL technique, which documents the potential asymmetric effects of outward foreign direct investment on economic growth in both the long run and short run. The empirical results suggest that ignoring the intrinsic asymmetries may conceal the true information about the equilibrium relationship among the variables and thus lead to misleading results. Particularly, the findings revealed that economic growth in China responds positively but differently to an increase and decrease in its overseas investment. The empirical evidence obtained through asymmetric model seemed to be superior to that of symmetric model and thus leads to more efficient policymaking to achieve sustainable economic development. Our study contributes to the existing literature by providing new insights on the outward foreign direct investment-led growth hypothesis. The findings suggest that firms investing abroad can bring source country benefits by securing access to key input factors and accessing advanced foreign technology.

Keyword : outward FDI, economic growth, time series, asymmetric ARDL, dynamic multiplier, China

How to Cite
Ali, U., Shan, W., Wang, J.-J., & Amin, A. (2018). Outward foreign direct investment and economic growth in China: evidence from asymmetric ARDL approach. Journal of Business Economics and Management, 19(5), 706-721.
Published in Issue
Dec 19, 2018
Abstract Views
PDF Downloads
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.


Akinlo, A. E. (2004). Foreign direct investment and growth in Nigeria: An empirical investigation. Journal of Policy Modeling, 26(5), 627-639.

Al-Sadiq, A. (2013). Outward FDI and domestic investment: The case of developing countries (Working Paper, No. 13/52). International Monetary Fund.

Ali, U., & Wang, J. J. (2018). Does outbound foreign direct investment crowd out domestic investment in China? Evidence from time series analysis. Global Economic Review, 47(4), 419-433.

Azman-Saini, W. N. W., Baharumshah, A. Z., & Law, S. H. (2010). Foreign direct investment, economic freedom and economic growth: International evidence. Economic Modelling, 27(5), 1079-1089.

Bahmani-Oskooee, M., & Ghodsi, S. H. (2017). Asymmetric causality and asymmetric cointegration between Income and house prices in the United States of America. International Real Estate Review, 20(2), 127-165.

Barro, R. J., & Sala-i-Martin, X. (2004). Economic growth (2nd ed.). Cambridge, London: The MIT Press.

Cai, K. G. (1999). Outward foreign direct investment: A novel dimension of China᾽s integration into the regional and global economy. The China Quarterly, 160, 856-880.

Child, J., & Rodrigues, S. B. (2005). The internationalization of Chinese firms: A case for theoretical extension? Management and Organization Review, 1(3), 381-410.

Desai, M. A., Foley, C. F., & Hines, J. R. (2005). Foreign direct investment and domestic capital stock. American Economic Review, 95(2), 33-38.

Dunning, J. H. (2001). The eclectic (OLI) paradigm of international production: Past, present and future. International Journal of the Economics of Business, 8(2), 173-190.

Eregha, P. B. (2012). The dynamic linkages between foreign direct investment and domestic investment in ECOWAS countries: A panel cointegration analysis. African Development Review, 24(3), 208-220.

Fousekis, P., Katrakilidis, C., & Trachanas, E. (2016). Vertical price transmission in the US beef sector: Evidence from the nonlinear ARDL model. Economic Modelling, 52, 499-506.

Fu, X. (2008). Foreign direct investment, absorptive capacity and regional innovation capabilities: Evidence from China. Oxford Development Studies, 36(1), 89-110.

Goh, S. K., & Wong, K. Y. (2014). Could Inward FDI offset the substitution effect of outward FDI on domestic investment? Evidence from Malaysia. Prague Economic Papers, 23(4), 413-425.

Herzer, D. (2008). The long-run relationship between outward FDI and domestic output: Evidence from panel data. Economics Letters, 100, 146-149.

Herzer, D. (2010). Outward FDI and economic growth. Journal of Economic Studies, 37, 476-494.

Hijzen, A., Jean, S., & Mayer, T. (2011). The effects at home of initiating production abroad: Evidence from matched French firms. Review of World Economics, 147(3), 457-483.

Hsu, W. C., Wang, C., & Clegg, J. (2015). The effects of outward foreign direct investment on fixed-capital formation at home: The roles of host location and industry characteristics. Global Economic Review, 44(3), 353-368.

Katrakilidis, C., & Trachanas, E. (2012). What drives housing price dynamics in Greece: new evidence from asymmetric ARDL cointegration. Economic Modelling, 29(4), 1064-1069.

Knoerich, J. (2017). How does outward foreign direct investment contribute to economic development in less advanced home countries? Oxford Development Studies, 45(4), 443-459.

Kotrajaras, P. (2010). Foreign direct investment and economic growth: A comparative study among East Asian countries. Applied Economics Journal, 17(2), 12-26.

Kouakou, A. K. (2011). Economic growth and electricity consumption in Cote d᾽Ivoire: Evidence from time series analysis. Energy Policy, 39(6), 3638-3644.

Lai, M., Peng, S., & Bao, Q. (2006). Technology spillovers, absorptive capacity and economic growth. China Economic Review, 17(3), 300-320.

Lecraw, D. J. (1993). Outward direct investment by Indonesian firms: Motivation and effects. Journal of International Business Studies, 24(3), 589-600.

Lee, C. G. (2010). Outward foreign direct investment and economic growth: Evidence from Japan. Global Economic Review, 39(3), 317-326.

Li, J., Strange, R., Ning, L., & Sutherland, D. (2016). Outward foreign direct investment and domestic innovation performance: Evidence from China. International Business Review, 25(5), 1010-1019.

Li, X., & Liu, X. (2005). Foreign direct investment and economic growth: An increasingly endogenous relationship. World Development, 33(3), 393-407.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326.

Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multiplier in a nonlinear ARDL framework. In R. C. Sickles, & W. C. Horrace (Eds.), Festschrift in Honor of Peter Schmidt: Econometric methods and applications (pp. 281-314). New York: Springer.

Stevens, G. V., & Lipsey, R. E. (1992). Interactions between domestic and foreign investment. Journal of International Money and Finance, 11(1), 40-62.

Sunesen, E. R., Jespersen, S. T., & Telle, M. H. (2010). Impacts of EU outward FDI. In Final report. Copenhagen Economics.

Tan, B. W., Goh, S. K., & Wong, K. N. (2016). The effects of inward and outward FDI on domestic investment: Evidence using panel data of ASEAN–8 countries. Journal of Business Economics and Management, 17(5), 717-733.

Todaro, M. P., & Smith, S. C. (2006). Economic development (9th ed.). Harlow: Pearson Education Ltd.UNCTAD. (2006). World investment report 2006: FDI from developing and transition economies: Implications for development. United Nations: New York.

UNCTAD. (2017). World investment report 2017: Investment and the digital economy. United Nations: New York and Geneva.

Weng, Y., Yang, C. H., & Tu, F. C. (2010). Outward foreign direct investment and product quality of domestic productions: An empirical investigation. Journal of Business Economics and Management, 11(3), 396-414.

Wesson, T. (1999). A model of asset-seeking foreign direct investment driven by demand conditions. Canadian Journal of Administrative Sciences, 16(1), 1-10.

World Bank databank. (2017). Retrieved from

You, K., & Solomon, O. H. (2015). China᾽s outward foreign direct investment and domestic investment: An industrial level analysis. China Economic Review, 34, 249-260.

Zhang, K. H. (2006). Foreign direct investment and economic growth in China: A panel data study for 1992-2004. In Conference of WTO, China and Asian Economies, 24th June 2006 (pp. 1-18). University of International Business and Economics, Beijing, China.

Zhang, Y., Chen, W., & Yang, P. (2011). OFDI impact on domestic investment efficiency: Based on China᾽s experience, in international conference of Machine Learning and Cybernetics (ICMLC), Guilin, China. IEEE, 3, 1279-1283.