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Foreign direct investment and trade: A causality analysis

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  • Oscar Bajo
  • María Montero

Abstract

We analyse in this paper the relationship between outward FDI and exports, with Spanish quarterly data for the period 1977-1992. The empirical methodology makes use of Granger-causality tests in a cointegration framework, where the order of lags for each variable has been selected by means of Hsiao¹s sequential approach. The tests have been performed both in a bivariate and multivariate setting, in the latter case including as additional variables a proxy for world income and the relative price of exports. Since cointegration between outward FDI and exports was found, error-correction mechanisms under three alternative specifications were included, which allowed us to discriminate between short- and long-run Granger-causality. Our results point to the existence of long-run Granger-causality from outward FDI to exports, according to a complementary relationship, for the Spanish case during the period of analysis.
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  • Oscar Bajo & María Montero, "undated". "Foreign direct investment and trade: A causality analysis," Studies on the Spanish Economy 06, FEDEA.
    • Handle: RePEc:fda:fdaeee:06
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    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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