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Trade, foreign direct investment and economic growth in Asian economies

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  • Xiaohui Liu
  • Chang Shu
  • Peter Sinclair

Abstract

Despite the increasing role of foreign direct investment (FDI) in economic development, very limited research has been carried out on the causal links between trade, FDI and economic growth in Asian economies. This study examines empirically the inter-play between exports, imports, FDI and economic growth for nine Asian economies by conducting multivariate causality tests in the vector error correction model (VECM) framework. The results reveal two-way causal connections between trade, inward FDI, inward merger and acquisitions (M&As) and growth for most of the sample economies. There is a unidirectional causal link running from outward M&As to growth and trade. These findings suggest that export expansion, import liberalization, FDI inflows and inward M&As are integral elements of the growth process in Asian economies.

Suggested Citation

  • Xiaohui Liu & Chang Shu & Peter Sinclair, 2009. "Trade, foreign direct investment and economic growth in Asian economies," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1603-1612.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:13:p:1603-1612
    DOI: 10.1080/00036840701579176
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    References listed on IDEAS

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    1. Blomström, Magnus & Kokko, Ari, 1997. "Regional Integration and Foreign Direct Investment," CEPR Discussion Papers 1659, C.E.P.R. Discussion Papers.
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    3. Linda S. Goldberg & Michael W. Klein, 1999. "International trade and factor mobility: an empirical investigation," Staff Reports 81, Federal Reserve Bank of New York.
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