Economic Theory, Research Paper Example

Econometric analysis is based on multiple regression of the form:

Yt=?0+?1X1t+?2X2t+?3X3t+?4X4t+Ut

Where Yt is the dependent variable (total China merchandise exports in year t.)

Independent variables X1- merchandise exports,

X2-total GDP

X3-FDI of

X4-SEZs and ETDZs.

Ut – random error

The variable SEZs represent the total number of SEZs and ETDZs in each year.

Ho Exports, GDP, FDI and the number of special economic zones affect the total China exports.

H1 Exports, GDP, FDI and the number of special economic zones do not affect the total China exports

The study reveals that rapid increase in some SEZs and ETDZs will increase the incentives FDI, GDP, and exports. An increase the FDI, GDP and exports of these ETDZs and SEZs will positively affect China’s total merchandise exports.

The government has laid framework and policies in place to attract foreign investment. These policies include reducing the cost of land, subsidizing tax, reducing the cost of capital through increasing the lending rates, reducing market interest rates, subsidizing or exempting trade tariffs and subsidizing other costs of production e.g. raw materials and labor. Foreign investors will develop the economy through innovations, increasing cash flows in the economy, creating employment, improving infrastructure.

Foreign investors improve the living standards of the domestic citizens through the creation of employment and creation of social amenities as a social responsibility of the foreign investors. Other policies, which encourage investment are monetary and fiscal policies.

Increased cash flows and revenues in the economy will lead to increase in GDP and GNP. Increased GDP and GNP will lead to financial stability, self-sufficiency, low inflation and a stable economy. This will reduce external and domestic borrowing by the government to finance budget deficits. Interest rates in the economy will reduce the cost of capital will reduce and marginal propensity to save will increase. For every endowment, a citizen will spend the least and save the rest because of low standards of living. Improved infrastructure will attract more investors leading to gradual economic growth. Tariff exemptions on raw materials imports will reduce the cost of production increasing the comparative advantage. This leads to increased exports as contributed by SEZs and ETDZs

Data Description

Statistical data was a time series data sourced from China National Development Zones from 1980 to 2012. The number of Economic and Technology Development Zones (ETDZs) has increased continuously through 1986 to 2012. For instance, there have been 90 ETDZs in 2010 and 131 ETDZs in 2011. This explains why panel data was not used in the study. Thereby, series of data for total ETDZs was used. For instance, there were 131 ETDZs in 2011, a total GDP value was used for 131 ETDZ.