Causal Nexus between Economic Complexity and FDI: Empirical Evidence from Time Series Analysis

Abstract

The rapid economic emergence of China is credited to be its products and economic complexity. Foreign direct investment, with its better-embedded knowhow and technology, is one of the main drivers for the higher economic complexity of China. By applying the ARDL and VECM approaches; this study confirms the long-run bidirectional and short-run unidirectional causal relationship between economic complexity and foreign direct investment. Besides, we include additional control variables such as institutional quality, information & communication technology, trade openness, per capita GDP, domestic investment, and human capital, which are found robust in our analysis.

Keywords:

• ARDL
• cointegration
• economic complexity
• FDI

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 MIT’s Observatory of Economic Complexity (http://atlas.media.mit.edu).

2 www.stats.gov.cn.

3 www.unctad.org.

4 WDI Database.

5 atlas.media.mit.edu/rankings.

6 https://www.prsgroup.com/.

7 See Donaubauer et al. (201684). Initially, the data is available until 2010; the rest of the data is extrapolated.

8 According to structuralist approach, the development and growth depend on moving production towards sectors that produce goods that are complex and have high value-added, in the expense of sectors that produce simple, low value-added goods.