Exploring the Dynamic Linkages Between FDI, Trade, and Economic Growth in Western China: A PVAR Approach

In the context of China’s regional development imbalance and transformation toward innovation-driven growth, understanding how foreign direct investment (FDI), trade, and innovation jointly influence regional economies has become a pressing issue. This study focuses on Western China, a region crucial to the national strategy for coordinated development yet often underrepresented in empirical research. Using provincial-level panel data from 12 western provinces from 2001 to 2022, a panel vector autoregressive (PVAR) model is employed to examine the dynamic relationships among FDI, exports, imports, research and development (R&D) investment, human capital, and economic growth. The results indicate that FDI and exports exert significant and persistent positive effects on regional economic growth, while imports and R&D investment contribute indirectly by promoting technological progress and enhancing competitiveness. Human capital also supports growth with a time lag, reflecting its cumulative nature. The findings provide empirical support for endogenous growth and global value chain theories, revealing that innovation and trade are key transmission channels of regional growth. This study contributes to the understanding of regional dynamic mechanisms and offers practical policy implications for promoting high-quality FDI, strengthening innovation, and developing human capital to achieve sustainable and inclusive growth in Western China, and provides useful reference for other developing countries and regions.