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Outward FDI and International Trade: the Study of Causal Effects

Author

Listed:
  • Osarumwense Osabuohien-Irabor

    (Department of International Economics, School of Economics, Ural Federal University)

  • Igor Mikhailovich Drapkin

    (Department of International Economics, School of Economics, Ural Federal University)

Abstract

Numerous studies have examined whether the interrelationship between outward foreign direct investment (OFDI) and international trade are complementary or substitutive. However, one major concern of policymakers is the possibility of OFDI precipitating de-industrialization and jobs losses of domestic economy. This study critically addresses these views by examining the interaction between OFDI and disaggregate international trade based on world bank country income classification which includes, the low income, lower-middle income, upper-middle income, and High income for a panel of 179 countries for the period of 2003 ? 2019. Based on dynamic panel data model for system-GMM, empirical findings show that OFDI has negative and significant effects on exports and imports of low-income countries, an indication of a substitutional relationship. Regarding the effects of exports on OFDI, and with exception of low-income countries, we found a positive and significant relationship for in all income cluster, an indication of a complementarity relationship. This shows that home country?s export is an important facilitator of OFDI. Overall, our empirical results support complementary effects on the dynamic interplay between OFDI and disaggregate international trade, suggesting a greater competitiveness in foreign markets as well as an increase in commercial integration.

Suggested Citation

  • Osarumwense Osabuohien-Irabor & Igor Mikhailovich Drapkin, 2021. "Outward FDI and International Trade: the Study of Causal Effects," Proceedings of Economics and Finance Conferences 12513347, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iefpro:12513347
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    File URL: https://iises.net/proceedings/15th-economics-finance-conference-prague/table-of-content/detail?cid=125&iid=012&rid=13347
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    Citations

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    Cited by:

    1. Bishwanath Goldar & Yashobanta Parida & Anindita Goldar, 2024. "Complementarity Versus Substitution Relationship between Outward FDI and Exports: Evidence from India," Journal of Asian Economic Integration, , vol. 6(1), pages 90-117, April.
    2. Qiangsheng Mai & Xiaoyan Wang, 2024. "Time-Varying Effects of China’s Agricultural OFDI on the Sustainability of Bilateral Agricultural Trade Within RCEP Countries: Multiple Analyses Based on the Model of Trade Gravity and TVP-VAR," Sustainability, MDPI, vol. 17(1), pages 1-24, December.
    3. Osabuohien-Irabor Osarumwense & Drapkin Igor M., 2023. "Global Outward Foreign Direct Investment and Economic Growth Across Income Groups: The Mediating Effect of Home Country Institutions," SAGE Open, , vol. 13(2), pages 21582440231, April.

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    Keywords

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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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