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FDI and Trade - Two Way Linkages?

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  • Joshua Aizenman

    ()
    (Economics, University of California, Santa Cruz)

  • Ilan Noy

    ()
    (Economics, University of Hawaii-Manoa)

Abstract

The purpose of this paper is to investigate the intertemporal linkages between FDI and disaggregated measures of international trade. We outline a model exemplifying some of these linkages, describe several methods for investigating two-way feedbacks between various categories of trade, and apply them to the recent experience of developing countries. After controlling for other macroeconomic and institutional effects, we find that the strongest feedback between the sub-accounts is between FDI and manufacturing trade. More precisely, applying Geweke (1982)'s decomposition method, we find that most of the linear feedback between trade and FDI (81%) can be accounted for by Granger-causality from FDI gross flows to trade openness (50%) and from trade to FDI (31%). The rest of the total linear feedback is attributable to simultaneous correlation between the two annual series.

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Bibliographic Info

Paper provided by East-West Center, Economics Study Area in its series Economics Study Area Working Papers with number 76.

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Length: 30 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:ewc:wpaper:wp76

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Citations

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Cited by:
  1. Noy, Ilan & Vu, Tam B., 2007. "Capital account liberalization and foreign direct investment," The North American Journal of Economics and Finance, Elsevier, vol. 18(2), pages 175-194, August.
  2. Anwar, Sajid & Nguyen, Lan Phi, 2011. "Foreign direct investment and trade: The case of Vietnam," Research in International Business and Finance, Elsevier, vol. 25(1), pages 39-52, January.
  3. Drazen Derado, 2009. "Financial Integration and Financial Crisis: Croatia Approaching The EMU," Financial Theory and Practice, Institute of Public Finance, vol. 33(3), pages 299-328.
  4. Yelena Kalyuzhnova & Michael Kaser, 2006. "Prudential Management of Hydrocarbon Revenues in Resource-rich Transition Economies," Post-Communist Economies, Taylor & Francis Journals, vol. 18(2), pages 167-187.
  5. Deniz Erdem, 2012. "Foreign direct investments, energy efficiency, and innovation dynamics," Mineral Economics, Springer, vol. 24(2), pages 119-133, June.
  6. Anita Radman Peša & Mejra Festić, 2012. "Testing the “EU Announcement Effect” on Stock Market Indices and Macroeconomic Variables in Croatia Between 2000 and 2010," Prague Economic Papers, University of Economics, Prague, vol. 2012(4), pages 450-469.
  7. repec:prg:jnlpep:v:2013:y:2013:i:4:id:434:p:450-469 is not listed on IDEAS
  8. World Bank, 2008. "Guinea : Development Policy Review," World Bank Other Operational Studies 7871, The World Bank.
  9. Muhammad Azam & Muhammad Khan & Nasir Iqbal, 2012. "Impact of Political Risk and Uncertainty on FDI in South Asia," Transition Studies Review, Springer, vol. 19(1), pages 59-77, September.
  10. Theo S Eicher & Lindy Helfman & Alex Lenkoski, 2011. "Robust FDI Determinants: Bayesian Model Averaging In The Presence Of Selection Bias," Working Papers UWEC-2011-07-FC, University of Washington, Department of Economics.
  11. Qureshi, Mahvash Saeed & Tsangarides, Charalambos G., 2012. "Hard or Soft Pegs? Choice of Exchange Rate Regime and Trade in Africa," World Development, Elsevier, vol. 40(4), pages 667-680.
  12. Jinjarak, Yothin, 2013. "Economic integration and government revenue from financial repression," Economic Systems, Elsevier, vol. 37(2), pages 271-283.
  13. Tolentino, Paz Estrella, 2010. "Home country macroeconomic factors and outward FDI of China and India," Journal of International Management, Elsevier, vol. 16(2), pages 102-120, June.
  14. Bassem Kahouli & Anis Omri & Anissa Chaibi, 2014. "Environmental Regulations, Trade, and Foreign Direct Investment: Evidence from Gravity Equations," Working Papers 2014-189, Department of Research, Ipag Business School.
  15. Tekin, Rıfat Barış, 2012. "Economic growth, exports and foreign direct investment in Least Developed Countries: A panel Granger causality analysis," Economic Modelling, Elsevier, vol. 29(3), pages 868-878.
  16. de Mello-Sampayo, Felipa & de Sousa-Vale, Sofia & Camões, Francisco, 2010. "Delaying the timing of offshoring low-skilled tasks," Economic Modelling, Elsevier, vol. 27(5), pages 951-958, September.
  17. Tolentino, Paz Estrella, 2008. "The determinants of the outward foreign direct investment of China and India: Whither the home country?," MERIT Working Papers 049, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  18. Jarko Fidrmuc & Neil Foster & Johann Scharler, 2007. "Labour Market Rigidities, Financial Integration and International Risk Sharing in the OECD," CESifo Working Paper Series 2028, CESifo Group Munich.

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