This study investigates the causal links between trade, economic growth and inward foreign direct investment (FDI) in China at the aggregate level. The integration and cointegration properties of quarterly data are analysed. Long-run relationships between growth, exports, imports and FDI are identified in a cointegration framework, in which this paper finds bi-directional causality between economic growth, FDI and exports. Economic development, exports and FDI appear to be mutually reinforcing under the open-door policy.

It is shown that the test for spatial correlation in regressiondisturbances can be derived by the application of Silvey's (1959) Lagrange Multiplier method.

Three asymptotically equivalent tests for the presence of a common factor in a spatial autoregression model are presented. When such a common factor exists, the model reduces to the simple regression with spatially correlated disturbances. The tests can thus be used to examine the appropriateness of the latter specification. The procedure is illustrated by application to a model of Irish agricultural consumption discussed by O'Sullivan (1968), and Cliff and Ord (1973).

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