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Foreign Direct Investment and Trade: A Causality Analysis

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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.

Suggested Citation

  • Oscar Bajo & Maria Montero Mu–oz, 1999. "Foreign Direct Investment and Trade: A Causality Analysis," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 9902, Departamento de Economía - Universidad Pública de Navarra.
  • Handle: RePEc:nav:ecupna:9902
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    More about this item

    Keywords

    Foreign direct investment; exports; Granger-causality;
    All these keywords.

    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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