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Trade Liberalisation and FDI Inflows in Emerging Economies

Author

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  • Mumtaz Hussain Shah

    (Institute of Management Studies, UoP, Peshawar)

  • Yahya Khan

    (Institute of Management Studies, UoP, Peshawar)

Abstract

This research work evaluates the proposition that trade liberalisation is instrumental in pulling FDI inflows to emerging economies. Using panel random effects model on annual data of 6 emerging countries including Brazil, China, India, Mexico, Russian Federation and Turkey from 1996 to 2014, it is found that liberalisation of trade and investment regime measured by trade agreements significantly affect the multinationals’ overseas investment decision. Market size, development level and human capital, considered essential by foreign investors, also have a significant positive effect on incoming FDI. Preferential and regional trade agreements increase the openness of a country’s economic and investment borders. They reduce duties, taxes, tariffs as well as the inflexibility in regime policies vis-à-vis foreign firm operations. This usually ensue trade and investment liberalisation and consequentially has a positive impact on FDI inflows to these nations. Among trade agreements only the preferential trade agreement is found to be significantly positive. It is plausible given the fact that except for Mexico all other countries selected are far away from the major FDI source nations

Suggested Citation

  • Mumtaz Hussain Shah & Yahya Khan, 2016. "Trade Liberalisation and FDI Inflows in Emerging Economies," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 8(1), pages 35-52, April.
    • Handle: RePEc:bec:imsber:v:8:y:2016:i:1:p:35-52
    DOI: dx.doi.org/10.22547/BER/8.1.3
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    References listed on IDEAS

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    Cited by:

    1. Shah, Mumtaz Hussain & Khan, Faisal, 2019. "Telecommunication Infrastructure Development and FDI into Asian Developing Nations," MPRA Paper 107255, University Library of Munich, Germany.
    2. Shah, Mumtaz Hussain & Khan, Atta Ullah, 2017. "Factors determining capital structure of Pakistani non-financial firms," MPRA Paper 82015, University Library of Munich, Germany.
    3. Shah, Mumtaz Hussain, 2017. "The Significance of WTO’s Trade Related Investment Measures (TRIMs) Agreement For Inward FDI in Sub-Saharan Africa," MPRA Paper 82009, University Library of Munich, Germany.
    4. Shah, Mumtaz Hussain & Lala, Gule, 2017. "Autocracy, Democracy and FDI inflows in Asian Developing Countries," MPRA Paper 107248, University Library of Munich, Germany.
    5. Shah, Mumtaz Hussain, 2018. "Corruption & Foreign Direct Investment: The Case of South Asia," MPRA Paper 107253, University Library of Munich, Germany.
    6. Shah, Mumtaz Hussain, 2016. "Financial development and foreign direct investment: The case of Middle East and North African (MENA) developing nations," MPRA Paper 82013, University Library of Munich, Germany.
    7. Shah, Mumtaz Hussain & Jamil, Iqra, 2016. "Trade Agreements and Transnational Corporations Presence in the Developing Asia," MPRA Paper 107250, University Library of Munich, Germany.
    8. Mumtaz Hussain Shah, 2017. "Inward FDI in East Asian & Pacific Developing Countries due to WTO Led Liberalisation," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(2), pages 1-20, June.
    9. Samina Sabir & Anum Rafique & Kamran Abbas, 2019. "Institutions and FDI: evidence from developed and developing countries," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-20, December.
    10. Mumtaz Hussain Shah & Anum Gul Afridi, 2015. "Significance of Good Governance for FDI Inflows in SAARC Countries," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 7(2), pages 31-52, October.
    11. Tamas Szigetvari, 2018. "Eastern Europe as investment location for Turkish OFDI," IWE Working Papers 247, Institute for World Economics - Centre for Economic and Regional Studies.
    12. Shah, Mumtaz Hussain & Khan, Sajjad, 2017. "Factors Effecting Commercial Banks Profitability in Pakistan," MPRA Paper 82016, University Library of Munich, Germany.
    13. Shah, Mumtaz Hussain & Khan, Fiaz, 2018. "Profitability and Working Capital Management Nexus: Evidence from Food & Personal Care Products Sector Firms Listed on Pakistan Stock Exchange," MPRA Paper 107254, University Library of Munich, Germany.
    14. Malsha Mayoshi Rathnayaka Mudiyanselage & Gheorghe Epuran & Bianca Tescașiu, 2021. "Causal Links between Trade Openness and Foreign Direct Investment in Romania," JRFM, MDPI, vol. 14(3), pages 1-18, February.
    15. Shah, Mumtaz Hussain, 2016. "The Effect of Macroeconomic Stability on Inward FDI in African Developing Countries," MPRA Paper 82014, University Library of Munich, Germany.
    16. Shah, Mumtaz Hussain & Ali, Zahid, 2016. "What Drives Foreign Direct Investment to BRICS?," MPRA Paper 107252, University Library of Munich, Germany.
    17. Shah, Mumtaz Hussain & Zeb, Aisha, 2017. "Prudent Macro Management of the Economy and Inward FDI in ASEAN Member States," MPRA Paper 107249, University Library of Munich, Germany.
    18. Mumtaz Hussain Shah & Saba Qayyum, 2015. "Impact of Double Taxation Treaties on Inward FDI in Latin American and Caribbean Developing Countries," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 7(1), pages 1-18, April.
    19. Shah, Mumtaz Hussain & Azam, Ayesha, 2018. "Financial Development and Investors Location Choice in The Arab World," MPRA Paper 107245, University Library of Munich, Germany.
    20. Achouak Barguellil, 2021. "The Asymmetric Indirect Impact of Real Exchange Rate on Economic Growth through Foreign Trade: An Asymmetric ARDL Panel Model," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(8), pages 658-671, August.
    21. Hisham Mohamed Hassan & Sonal Devesh & Omer Ali Ibrahim, 2022. "The Importance of Trade Openness and Inflation for Attracting Foreign Direct Investment in GCC Countries," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 17-40.

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