Analysis of China s Import from & Direct Investment in ASEAN Based on Gravity Models

Transcription

1 Technology and Investment, 2013, 4, Published Online February 2013 ( Analysis of China s Import from & Direct Investment in ASEAN Based on Gravity Models Juan Wang, Yusheng Kong, Haijun Wang School of Finance & Economics, Jiangsu University, Zhenjiang, China wj@ujs.edu.cn Received September 17, 2012; revised October 22, 2012; accepted October 30, 2012 ABSTRACT China and Southeast Asian nations free trade area was formally established on January 1, By the end of year 2011, China s foreign exchange reserves exceeded 3200 billion US dollars. Trade gravity model originates from the law of universal gravitation. Domestic researchers have made empirical studies using trade gravity model of trade between China and Southeast Asian nations. There are also studies of foreign direct investment or Chinese tourist arrivals in Vietnam, using gravity model. However, neither tariff and foreign exchange reserves are taken into consideration in studying China and Southeast Asian nations free trade area, nor gravity model is used in analyzing China s direct investment and tourist arrivals in Southeast Asian nations. Using econometrics software Eviews 5.0 and based on a panel data from year 2000 up to 2008, this paper constructs a gravity model, the independent variables of which are gross domestic product per capita of CAFTA countries, foreign exchange reserves of CAFTA countries, squares of southeast Asian nations, and distance between China and southeast Asian nations. And quantitative relationship is made between independent variables and China s direct investment in Southeast Asian nations, import from Southeast Asian nations, as well as arrivals of Chinese visitors in Southeast Asian nations. Keywords: Gravity Model; ASEAN (Association of Southeast Asian Nations); CAFTA (China-ASEAN Free Trade Area); ODI (Outward Direct Investment); Import; FER (Foreign Exchange Reserves); GDP (Gross Domestic Product) Per Capita 1. Introduction CASEAN was established on January 1, By the end of year 2011, China s foreign exchange reserves exceeded 3200 billion US dollars. What are the relationship of and its direct investment in Southeast Asian nations? What s the relationship between China s foreign exchange reserves and Chinese tourist arrivals in as well as its import from Southeast Asian nations? These no doubt are of significant research value. Taking foreign exchange reserves into consideration and using gravity model, this paper studies China s direct investment and tourist arrivals in ASEAN nations. Using econometrics software Eviews 5.0 and based on a panel data from year 2000 up to 2008, this paper constructs a gravity model, the independent variables of which are gross domestic product per capita of CAFTA countries, foreign exchange reserves of CAFTA countries, squares of southeast Asian nations, and distance between China and southeast Asian nations. And quantitative relationship is made between independent variables and China s direct investment in Southeast Asian nations, import from Southeast Asian nations, as well as arrivals of Chinese visitors in Southeast Asian nations. The organization of this paper is as follows: Section 2 is a summary of relevant literatures; Section 3 introduces the model construction, including selection of variables, data resources, model formula as well as the estimation method; Section 4 gives out the results and analysis; Section 5 draws conclusion and suggestions. At the end is a list of relevant literatures. 2. Summary of Relevant Literatures Trade gravity model originates from the law of universal gravitation. While Tinbergen (1962) & Poyhonen (1963) are the first to apply this law of universal gravitation to the field of international trade. Research has shown that the trade flow between two countries is positively correlated with their respective gross domestic products, whereas negatively correlated with the distance between them. The respective gross domestic product indicates supply of the exporting country and demand of the importing country. The distance between two countries is their trade hindrance. Domestic researchers have made empirical studies using trade gravity model of trade between China and

2 14 J. WANG ET AL. Southeast Asian nations. For instance, Li Yanru et al. from Guangxi Nationality Normal College analyzed bilateral trade between six southeast Asian nations and China, America, Japan, Germany, Korea and Australia, using panel data from year 1998 to 2008, and evaluated the influence of establishment of CAFTA on trade within it [1]; Wang Hongtao from Guangxi College of Finance & Economics used six explanatory variables to construct an extended trade gravity model, and made empirical analysis of bilateral trade between Guangxi and ASEAN [2]; Wu Simin et al. from Jiangnan University focused on to what extent disequilibrium in economic development affect intra-regional trade [3]; Shan Wenting et al. from Beijing University of Aeronautics & Astronautics constructed both a basic model, which includes variables such as GDP, GDP per capita, and distance, using panel data from year 2000 to 2004, and an expanded model which added variables Chinese, and Chinese population [4]; A comparison made by Song Dongling of North China water conservancy and hydropower college with additional 36 trading partners reveal that traditional elements, i.e., economic scale, average development and distance, still play a significant role, while dummy variables such as WTO membership and proportion of Chinese are not ignorable [5]; Ding Huixia of Zhengzhou University made a summary of theories concerning trade gravity model as well as problems arising from application of the model [6]. International direct investment is closely related with international trade, and gravity model is applicable to direct investment. Research by Gao Guowei shows that direct investment between two countries is negatively correlated with the distance between them, while positively correlated with their economic scale [7]. Grampon was the first (1966) to apply gravity model to tourism study [8]. Taking China s famous scenic sport Shennongjia as an example, Wan Nianqing et al. made empiric study. Huang Ailian from Guangxi University made use of gravity model in Vietnamese arrivals in China, which reveals that GDP of countries, tourist arrivals, distance and boundaries play important role [9]. However, neither tariff and foreign exchange reserves are taken into consideration, nor gravity model is used in analyzing investment and tourist arrivals. This paper made explorations in this respect. 3. Model Construction 3.1. Selection of Variables Variables adopted by Li Yanru et al. include country i s export to and import from country j, GDP of country i and country j, GDP per capita of country i and country j, distance between country i and country j, and a dummy variable of membership; Variables adopted by Wu Simin et al. include trade flow between country i and country j, GDP of country i and country j, GDP per capita of country i and country j, difference of GDP per capita between two countries within a free trade area, geological distance between two countries within a free trade area; Variables used by Shan Wenting et al. include GDP of the importing country and exporting country, GDP per capita of the importing country and exporting country, difference of GDP per capita between two countries, distance, FDI, a dummy variable of WTO membership, a dummy variable of APEC membership, dummy variables of Chinese, Chinese population and diplomat relationship. The variables used in this paper is outlined in Table Data Sources & Data Samples 1) Data resources Tourist arrivals from China to ASEAN countries originate from Table VIII.27, ASEAN statistical yearbook 2005 and Table VIII.17 Visitor Arrivals from China to ASEAN by Country of Destination, , ASEAN statistical yearbook 2008, see Table 2. The export data to China by ASEAN countries come from the Table 1. Variables and their notation. Variables ODI Tourists Import FER GDP per capita Territory squares Distance Notation China s outward direct investment in ASEAN countries is the independent variable of this paper, which is neglected by relevant literatures China s tourist-arrivals is another independent variable of this paper, which is neglected by relevant literatures China s import from ASEAN countries or ASEAN export to China is a variable which is closely related with China s foreign exchange reserves Foreign exchange reserves are the core variable of this paper, the purpose of which is to investigate into the relationship of FER and other variables Instead of GDP, which is an overall amount, GDP per capita reflects the average economic level and take into consideration of the population matter. Thus it can better represent the real situation of a country s economy The squares of an ASEAN country are related with tourist arrivals in that country The distance between China and an ASEAN country affects not only tourist arrivals in that country

3 J. WANG ET AL. 15 Table 2. Number of Chinese visitors in ASEAN countries. Year/Destination Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam UN Commodity Trade Statistics Database (COMTRADE), the original data are shown in Table 3. Since little data of Brunei, Myanmar and Laos can be found in COM- TRADE, respective data of the three countries are collected from news report and Chinese commercial offices in ASEAN countries. Foreign exchange reserves of China (FRt_China, 0.1 billion dollars) & ASEAN countries (FRit, 0.1 billion dollars) come from UN and China national bureau of statistics websites, shown in Table 4. Direct investment (million dollar) of China in ASEAN countries from year 1995 to 2001 come from Table VI.13 FDI inflows into ASEAN Member Countries from China in ASEAN secretary s ASEAN Statistical Yearbook 2003; Direct investment from year 2000 to 2005 come from Table VI.2 FDI Inflow into ASEAN by Source Country, AECC 2009; 2006 data come from ACIF2008 and Table VI.14 FDI inflows into Brunei Darussalam by Source Country, , ASEAN statistical yearbook 2008, the above data are arranged in Table 5. GDP per capita (PGDPit) stem from Item Value US dollars Per capita GDP at current prices, UN Statistics Division, shown in Table 6. The distance between China and ASEAN countries stems from as in Table 7. The sources of territory area of ASEAN countries (SQi) is ASEAN Statistics-leaflet SKI 2011, ASEAN secretariats, refer to Table 8. 2) Data samples Tables 2 to 8 provide the original data got from the above sources Gravity Model Formula Taking China s direct investment in ASEAN (Inv), China s import from ASEAN countries (C_imp), and visitor arrivals from China to ASEAN countries (Vt) as dependent variables, this paper constructs three gravity models. 1) Taking GDP per capita of China (PGDPt_China), GDP per capita of ASEAN countries (PGDPit), territory area of ASEAN countries (SQi), foreign exchange reserves of ASEAN countries (Frit), foreign exchange reserves of China (FRt_China), distance between China and ASEAN countries (Di) as independent variables, China s direct investment in ASEAN countries (Inv) as the dependent variable, this paper constructs a investment gravity model as follows: lnv (1) f PGDPit, PGDPt _ China, FRit _ China, SQi, Di lnv a * PGDPit a * PGDPT _ China a * FRit a * FRt_China a * SQi a * Di a The logarithm form is: Ln lnv ln ( a ) ln PGDPit *PGDPT _ China a 2 a 0 1 ln FRit *FRt _ China a3ln SQi a4ln Di ij 2) Taking GDP per capita of China (PGDPt_China), GDP per capita of ASEAN countries (PGDPit), foreign exchange reserves of China (FRt_China), distance between China and ASEAN countries (Di), and China s tariff (C_tariff) as independent variables, China s import from ASEAN countries (C_imp) as the dependent variable, this paper constructs an import gravity model as follows: lmp f PGDit,PGDPt_China, (4) FRt_China,Di,C_tariff lmp a * PGDPit * PGDPt_C a 0 1 a * FRt_C a * Di a * C_tariff a (2) (3) (5)

4 16 J. WANG ET AL. Table 3. China s import from ASEAN, trade value m$. Year/origin Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam Table 4. FER (0.1 billion US dollars). Year/Country Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam Table 5. China s investment in ASEAN: million US dollars. Year Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam

5 J. WANG ET AL. 17 Table 6. Per capita GDP at current prices (US dollars). Year Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam China Bandar Seri Begawan Phnom Penh Table 7. Distance between Shanghai & ASEAN (km). Jakarta Vientiane Kuala Lumpur Rangoon/ Yangon Manila Port of Singapore Bangkok Hanoi Table 8. Territory: square kilometers. Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam China The logarithm form is: Ln lmp a ε = ln a + a ln PGDPit + a ln PGDPt_C a ln FRt_c + ln Di a ln C_tariff + ij 3) Taking GDP per capita of China (PGDPt_C), GDP per capita of ASEAN countries (PGDPit), territory area of ASEAN countries (SQi), foreign exchange reserves of China (FRt_C), distance between China and ASEAN countries (Di) as independent variables, visitor arrivals from China to ASEAN countries Vt as the dependent variable, this paper constructs visitors gravity model as follows: Vt = f Pt_C a * SQi PGDPit, PGDPt_C, FRt_C,SQi, Di a a == a * PGDPit * PGD 0 1 a *FRt_C 2 3 The logarithm form is: * Di a 4 5 a4 ε Ln Vt = ln a + a ln PGDPit + a ln PGDPt_C a ln FRt_C + ln Di a + 5ln SQi + ij 3.4. Estimation Method (6) (7) (8) Individual random effect model is used in estimation of China s import from ASEAN countries; Basing on period SUR weight selection, mixed estimation is used for China s direct investment in ASEAN countries and visitor arrivals from China to ASEAN countries. 4. Results and Analysis We can see from Table 9 that the significance of F-statistics is and R 2 is 0.63, indicating a good fitting. The coefficient of LOG PGDP? is positive, which indicates that the higher an ASEAN country s GDP per capita, the higher the value China imports from this country; The coefficient of LOG FR _ CHINA is positive, indicating that the higher China s foreign exchange reserves, the higher the value China imports from this country. The largest constant goes to Vietnam, and the corresponding equation is: LOGC_IMP_VIETNAM *LOG PGDP _ VIETNAM *LOG FR _ CHINA (9) *LOG D _ VIETNAM *LOG PGDP _ CHINA *LOG C _ TARIFF

6 18 J. WANG ET AL. Table 9. Estimation of China s import from ASEAN. Dependent variable: LOG C _ IMP? Method: pooled EGLS (Cross-section random effects) Sample: Included observations: 10 Cross-sections included: 10 Total pool (balanced) observations: 100 Swamy and arora estimator of component variances Variable Coefficient Std. Error t-statistic Prob. C LOG PGDP? LOG FR _ CHINA LOG D? LOG PGDP _ CHINA LOG C _ TARIFF _BRUNEI--C _INDONESIA--C _MALAYSIA--C _PHILIPPINES--C _SINGAPORE--C _THAILAND--C _LAOS--C _VIETNAM--C _MYANMAR--C _CAMBODIA--C Random effects (Cross) Effects specification Cross-section random S.D./Rho Idiosyncratic random S.D./Rho Weighted statistics R-squared Adjusted R-squared S.E. of regression F-statistic Prob (F-statistic) Mean dependent var S.D. dependent var Sum squared resid Durbin- Watson stat The constant corresponding to Philippines ranks the third, and the estimation equation is: LOG C _ IMP _ PHILIPPINES * LOG PGDP _ PHILIPPINES * LOG FR _ CHINA * LOG D _ PHILIPPINES * LOG PGDP _ CHINA *LOG C _ TARIFF (10) The constant of Brunei, Laos, Cambodia, and Myanmar is negative, which shows that among the ten ASEAN countries, these four countries export the least to China. The estimation equation is: LOG INV? *LOG PGDP? *LOG FR? *LOG D? (11) *LOG SQUARE? *LOG PGDP _ CHINA *LOG FR _ CHINA The fitness coefficient R 2 in Table 10 is , the significance of F-statistics is , which shows a close fitness. The coefficient of LOG PGDP? is negative, showing that the higher an ASEAN country s GDP per capita, the less is China s direct investment in the ASEAN country; the coefficient of LOG PGDP _ CHINA is positive, showing that the higher China s GDP per capita, the more China s direct investment in ASEAN countries; the coefficient of LOG FR? is positive, showing that the higher foreign exchange reserves ASEAN countries have, the more China s direct investment in ASEAN countries; the coefficient of LOG SQUARE? the larger ASEAN country s territory, the less is China s direct investment in the ASEAN country; the coefficient of LOG D? is positive, showing that the further the distance, the more China s direct investment in that ASEAN country; the coefficient of LOG FR _ CHINA is negative, showing that the higher foreign exchange reserves China has, the less is China s direct investment. The estimation equation is: LOG VT? * LOG PGDP? * LOG FR _ CHINA (12) * LOG D? * LOG PGDP _ CHINA * LOG SQUARE? The fitness coefficient R 2 in Table 11 is , the

7 J. WANG ET AL. 19 Table 10. The estimation of China s direct investment in ASEAN countries. Dependent variable: LOG INV? Method: pooled EGLS (Period SUR) Sample: Included observations: 9 Cross-sections included: 10 Total pool (unbalanced) observations: 69 Linear estimation after one-step weighting matrix Variable Coefficient Std. Error t-statistic Prob. C LOG PGDP? LOG FR? LOG D? LOG SQUARE? LOG PGDP _ CHINA LOG FR _ CHINA Weighted statistics R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Sum squared resid F-statistic Durbin-Watson stat Prob (F-statistic) Unweighted statistics R-squared Mean dependent var Sum squared resid Durbin-Watson stat significance of F-statistics is 0.000,000, which shows a close fitness. The coefficient of LOG PGDP? is positive, showing that the higher an ASEAN country s GDP per capita, the more visitor arrivals from China to ASEAN countries; The coefficient of LOG FR _ CHINA is negative, indicating that the higher foreign exchange reserves China has, the less visitor arrivals from China to ASEAN countries; The coefficient of LOG D? is negative, indicating that the further the distance between China and an ASEAN country, the less visitor arrivals from China to ASEAN countries; The coefficient of LOG PGDP _ CHINA is positive, showing that the higher China s GDP per capita, the more visitor arrivals from China to ASEAN countries; The coefficient of LOG SQUARE? is positive, showing that the larger an ASEAN country s territory, the more visitor arrivals from China to that ASEAN country. 5. Conclusions and Suggestions 5.1. The Result of China s Import from ASEAN Model Indicates The higher China s foreign exchange reserves, the higher China s import from ASEAN. Brunei, Laos, Cambodia and Myanmar lag behind other six ASEAN countries in exporting to China. Whereas Vietnam ranks the first, and Philippines ranks the third. Therefore China not only has the potential of expanding import from Brunei, Laos, Cambodia and Myanmar, but also counteracts in regard of South China Sea issue through control of import from Vietnam and Philippines.

8 20 J. WANG ET AL. Table 11. The estimation of visitor arrivals from China to ASEAN countries. Dependent variable: LOG VT? Method: pooled EGLS (Period SUR) Sample: Included observations: 9 Cross-sections included: 10 Total pool (unbalanced) observations: 88 Linear estimation after one-step weighting matrix Variable Coefficient Std. Error t-statistic Prob. C LOG PGDP? LOG FR _ CHINA LOG D? LOG P GDP _ CHINA LO G SQUARE? Weighted statistics R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Sum squared resid F-statistic Durbin-Watson stat Prob(F-statistic) Unweighted statistics R-squared Mean dependent var Sum squared resid Durbin-Watson stat The Result of Chinese Tourist Arrivals in ASEAN Model Reveals The higher China s foreign exchange reserves are, the less Chinese tourist arrivals in ASEAN. The further the distance between China and an ASEAN country is, the less Chinese tourist arrivals in ASEAN. The higher China s GDP per capita is, the more Chinese tourist arrivals in ASEAN. The larger the territory of an ASEAN country is, the more Chinese tourist arrivals in ASEAN. Thus Chinese tourist arrivals in ASEAN will expand with China s GDP per capita The Result of China s Direct Investment in ASEAN Model Suggests The higher GDP per capita of ASEAN, the less China s direct investment. This is in accordance with anticipation. The higher China s GDP per capita, the more China s direct investment. This is also in compliance with antici- pation. Nevertheless, the higher an ASEAN country s foreign exchange reserve, the more China s directs investment in it. The larger the territory of an ASEAN country, the less China s direct investment in it. The further the distance between China and an ASEAN country is, the more China s direct investment in it. The higher China s foreign exchange reserves are, the less China s direct investment. These run contrary to supposition. Hence China s direct investment in ASEAN can be further expanded to exert a positive influence of huge foreign exchange reserves. REFERENCES [1] Y. R. Li, Z. X. Hu and C. G. Ma, Expanded Effects of CAFTA on Intra-Regional Trade A Positive Study Based on Gravity Model, Productivity Research, No. 10, 2011, pp [2] H. T. Wang, Empirical Study of Bilateral Trade between Guangxi and ASEAN Based on Trade Gravity Model,

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