Effect of China’s Outward Foreign Direct Investment in Portuguese-Speaking Countries on Its Bilateral Trade

Investment and trade are integral components of economic cooperation between China and Portuguese-speaking countries (PSCs), which is not considered by the existing literature. This study empirically analyzes, for the first time, the impact of China’s outward foreign direct investment (OFDI) on its bilateral trade with PSCs, employing both the augmented mean group estimator and the error correction model. The study reveals that China’s OFDI has a positive long-term impact on its trade with PSCs, and the impact varies across countries. Specifically, China’s OFDI stimulates imports only in natural resource-rich PSCs, while it enhances exports in the majority of PSCs. Additionally, in the short term, China’s OFDI negatively affects its imports while having a positive impact on its exports. This study not only enriches the literature on the trade effects of OFDI from the perspective of dynamic variations, but also provides recommendations for optimizing the location selection in China’s natural resource-seeking OFDI and diversifying investments to promote bilateral trade.