Empirical Analysis of Export Tax Rebate on Inwards Foreign Direct Investment in China

Export tax rebate (ETR) and inwards foreign direct investment (IFDI) are important driving forces for the steady development of China’s export-oriented economy. Based on data from 2004 to 2019, this study puts forward relevant assumptions on constructing a model for empirically analyzing the impact of the ETR on China’s IFDI from the perspective of the national and the sub-national. The result demonstrates that there exists a complementary relationship between the ETR and IFDI; the weak lag effect of ETR on IFDI in the eastern, middle, and western regions of China; an explicit impact on the performance in the western region, which lags behind only one period; and no significant lag effect of ETR on IFDI in developed, moderately developed, and underdeveloped regions. On the basis of this evaluation, the conclusion could be achieved that that ETR has a significant effect on IFDI, though there may be differences in the direction and value of the impact. The highlight of this research is to detect the impact of ETR on IFDI by taking China as a case, and achieved that there exist sub-national differences, including the geographical and development-level differences. Plain Language Summary Export Tax Rebate on IFDI The purpose of this article was to detect the impact of export tax rebates (ETR) on China’s Inwards Foreign Direct Investment (IFDI) by considering various types of regional differences. The main methods was to establish econometric model considering of time lag effect and control variable and bring relevant hypothesis, then made panel data model to reveal the impact from perspectives of different regions. The conclusion was that the impact of the ETR on the IFDI generally demonstrated differences in complementarity, lag, and geographical and development levels. The implications was that China should implement different regional ETR policy for achieving larger effect on IFDI. The limitations could be detected from two aspects, which was whether an ETR that lags behind to be adopted being debatable and the adoption of enterprise microdata could effectively examine the impact of ETR on IFDI respectively.