Trade Openness and Macroeconomic Dynamics: Evidence from China

Abstract

Foreign direct investment, exchange rate are the key variables that have a great influence on economic growth. This study investigates the relationship between foreign direct investment, inflation, exchange rate, economic growth and trade openness in China. This study used the ARDL technique. The data is collected from WDI and data range is 2000-2024. Trade openness is used as dependent variable while foreign direct investment inflow, inflation, exchange rate, and economic growth using as independent variables. The short run findings indicate that foreign direct investment, inflation, exchange rate positively impacts the trade openness however; the impact of inflation is insignificant. Economic growth correlates significant and negative with trade openness. In the long run ARDL results found that all variables foreign direct investment, inflation, exchange rate, and economic growth have significant except exchange rate positively associated with trade openness in China. Based on these results, policymakers and officials should focus on stabilizing the exchange rate, controlling inflation, and formulating policies that attract foreign investors and promote economic growth in China.