FDI and Trade -- Two Way Linkages?

37 Pages Posted: 6 Jul 2005 Last revised: 28 Feb 2021

See all articles by Joshua Aizenman

Joshua Aizenman

National Bureau of Economic Research (NBER)

Ilan Noy

Victoria University of Wellington

Multiple version iconThere are 2 versions of this paper

Date Written: June 2005

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)%u2019s 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.

Suggested Citation

Aizenman, Joshua and Noy, Ilan, FDI and Trade -- Two Way Linkages? (June 2005). NBER Working Paper No. w11403, Available at SSRN: https://ssrn.com/abstract=741552

Joshua Aizenman (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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United States

Ilan Noy

Victoria University of Wellington ( email )

P.O. Box 600
Wellington, 6140
New Zealand

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