Market Impediments, Trade, and Foreign Direct Investment: Evidence from China's Round-Tripping

43 Pages Posted: 20 Mar 2007

See all articles by Hung-Gay Fung

Hung-Gay Fung

University of Missouri at Saint Louis - College of Business Administration

Jot Yau

Seattle University

Gaiyan Zhang

University of Missouri at St. Louis - College of Business Administration

Date Written: November 27, 2006

Abstract

This study uses reported exports and imports figures of China-Hong Kong and China-Thailand trade to examine the relations among trade, foreign direct investment flows, and tax-induced market impediments. The empirical results, largely consistent with theoretical models, support several conclusions. First, the spurious transfer of funds to and out of China, via under-reporting exports and over-reporting imports, closely follows the preferential tax incentives such as tax breaks to foreign investors. Second, exports under-reporting is negatively related to rebates for export. Third, imports over-reporting is negatively related to import tariffs. Finally, under-reporting of exports and over-reporting of imports appear to be most common in state-owned firms.

Keywords: Trade flows, foreign direct investment, round-tripping, regulatory arbitrage

JEL Classification: F18, F23, F34

Suggested Citation

Fung, Hung-Gay and Yau, Jot and Zhang, Gaiyan, Market Impediments, Trade, and Foreign Direct Investment: Evidence from China's Round-Tripping (November 27, 2006). Available at SSRN: https://ssrn.com/abstract=972174 or http://dx.doi.org/10.2139/ssrn.972174

Hung-Gay Fung

University of Missouri at Saint Louis - College of Business Administration ( email )

One University Blvd.
487 SSB
St. Louis, MO 63121
United States
314-516-6374 (Phone)

Jot Yau

Seattle University ( email )

901 12th Avenue
Seattle, WA 98122
United States

Gaiyan Zhang (Contact Author)

University of Missouri at St. Louis - College of Business Administration ( email )

One University Blvd
St. Louis, MO 63121
United States

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