Macroeconomic drivers of corporate investment in China: A multivariate analysis

This study investigates the macroeconomic drivers of corporate investment in China using a multivariate time-series analysis of annual data from 1990 to 2022, with effective sample sizes ranging from 31 to 33 observations depending on the lag structure and model specification. Focusing on five key variables—interest rates, inflation, GDP growth, exchange rates, and corporate profits—the research examines their joint impact on aggregate corporate investment. By emphasising macroeconomic rather than micro-level determinants, the study enhances understanding of how national policy and financial conditions shape investment behaviour in the Chinese economy. The novelty of this research lies in three specific contributions: (1) applying the ARDL–ECM framework to China's aggregate corporate investment data over 1990–2022, a period covering major structural and policy transitions; (2) comparing OLS, 2SLS, and ARDL–ECM results to show how dynamic time-series specification affects inference; and (3) providing evidence that the traditional accelerator mechanism appears weaker in China's aggregate investment dynamics as the economy matures. Using an Autoregressive Distributed Lag–Error Correction Model (ARDL–ECM) as the primary estimation framework, with Ordinary Least Squares (OLS) and Two-Stage Least Squares (2SLS) as robustness checks, the results indicate that higher interest rates significantly reduce investment. Corporate profits are positively associated with investment, though the relationship is not statistically significant. Exchange-rate movements have a consistently negative and statistically significant effect on investment, while the impacts of inflation and GDP growth appear more nuanced, reflecting China's unique structural and policy environment. These findings contribute to the broader understanding of macroeconomic investment dynamics and provide practical insights for policymakers seeking to sustain investment growth and economic resilience amid a rapidly evolving financial landscape.