Abstract:Under the background of Global Value Chains, the trend of intra-production specialization makes domestic added value reflect a country’s real gains from exports. Adhering to the strategy of “bringing in” and “going out”, China has been deeply embedded in the global production network through two-way FDI. How to improve domestic value-added rate by two-way FDI is an important issue. However, the existing studies mostly focus on the role of one-way FDI, ignoring the important impact of coordinated development of two-way FDI on the domestic value-added rate. This paper uses the data of IFDI and OFDI in the UNCTAD database to measure the coordinated development degree of two-way FDI by referring to the capacity coupling system model in physics and uses the TiVA database jointly published by OECD-WTO to measure the domestic value-added rate. Then, this paper empirically studies the impact of the coordinated development of two-way FDI on the domestic value-added rate and its internal mechanism based on the panel data of 63 countries (regions) from 2000 to 2018. The results show that the coordinated development of two-way FDI is beneficial to the domestic value-added rate, and this conclusion passes a series of robustness and endogeneity tests. Mechanism tests show that coordinated development of two-way FDI improves domestic value-added rate by promoting innovation, upgrading industrial structure, and optimizing resource allocation. The heterogeneity test shows that the coordinated development of two-way FDI strongly improves the domestic value-added rate of developed countries and countries with high financial levels. Compared with the existing studies, this paper’s contribution may be mainly reflected in the following aspects: firstly, this paper measures the coordinated development level of two-way FDI of 63 countries (regions) from 2000 to 2018 using the data of IFDI and OFDI; secondly, this paper empirically studies the impact of coordinated development of two-way FDI on domestic value-added rate in the framework that IFDI and OFDI are included at the same time, which expands the research of the relationship between international investment and Global Value Chains; thirdly, this paper investigates the influence mechanism of coordinated development of two-way FDI on domestic value-added rate, which helps us to strengthen the understanding of the logical relationship behind them. Our research reveals the relationship and inherent logic between coordinated development of two-way FDI and domestic value-added rate, helps the government to formulate more targeted development policies of “bringing in” and “going out”, and provides a reliable basis for China to make full use of coordinated development of two-way FDI to realize status climbing in Global Value Chains.