Predictability between the Number of Foreign Direct Investment Contracts and Actually Utilized Foreign Direct Investment in China

Actually utilized foreign direct investment (AUFDI) and the number of FDI contracts are two indicators that could be used to assess the performance of foreign investments in an area. This paper mainly aims to investigate if these two statistical variables could be used to predict each other in the long run as well as in the short run. Data were monthly time series and spanned 2002-2016. The Augmented Dickey-Fuller and Phillips-Perron tests indicated two series were integrated of order one. Both the Engle-Granger and Johansen tests did not detect a cointegrating vector. Hence, the study constructed a first-differenced lagged vector-autoregression model, within which estimated short-term coefficients were statistically insignificant. Log AUFDI did not Granger cause log FDI contracts and vice versa. Therefore, changes in foreign investment contracts and changes in actually used foreign investment could not forecast each other either during a short term or a long term. This paper suggests that the market orientation in foreign investments is growing. For purposes of foreign investment statistics, while actually used foreign direct investment definitely measures the investment level, the contract number must be treated with care.