Journal of Applied Economic Research
ISSN 2712-7435
Foreign Direct Investment and International Trade: Empirical Analysis of Mutual Influence
I.M. Drapkin 1, S.A. Lukyanov 1,2, R.I. Groznykh 1
1 Ural Federal University named after the First President of Russia B.N. Yeltsin, Ekaterinburg, Russia
2 State University of Management, Moscow, Russia
Abstract
Foreign direct investment and international movement of commodities are interrelated in the world economy. At the same time, the nature of this relationship and the causality issues are ambiguous and need to be studied from both theoretical and empirical sides. The aim of this paper is to estimate empirically the mutual influence of foreign direct investment and international trade in the modern economy. The econometric model is based on the gravity approach, the estimation is made using the Poisson pseudo maximum likelihood method on the data for 67 host and 109 home FDI countries for the period of 2001–2016. The hypotheses on the positive mutual influence of foreign direct investment and international trade are tested. A positive and significant influence of export and import flows on inward foreign direct investment is observed. The largest impact of export and import on foreign direct investment is observed when a two-year lag is considered. We could not reveal a significant influence of foreign direct investment on export and import flows either within one year, or for the lagged FDI values. The authors argue that pro-trade government policy, aimed at the integration of the country into global value chains is an important factor stimulating the inflow of foreign direct investment to the country. From the practical point of view, understanding the causal linkages between export, import and foreign direct investment helps state authorities better forecast the direct and indirect effects of various trade policy incentives.
Keywords
foreign direct investment; export; import; international trade; gravity model; Poisson pseudo maximum likelihood
JEL classification
F17, F21References
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Acknowledgements
This article has been prepared with the support of the grant No. MD-6402.2018.6 of the President of the Russian Federation on state support of young scientists “Institutional determinants of foreign direct investment inflows: country and region level analysis”.
About Authors
Drapkin Igor Mikhailovich
Doctor of Economics, Professor, Department of International Economics and Management, Ural Federal University named after the first President of Russia B.N. Yeltsin, Ekaterinburg, Russia (620002, Ekaterinburg, Mira street, 19); ORCID 0000-0002-5989-8463; e-mail: i.m.drapkin@mail.ru.
Lukyanov Sergey Alexandrovich
Doctor of Economics, Professor of the Russian Academy of Science, Head of the Department of International Economics and International Economic Relations, State University of Management, Moscow, Russia (109542, Moscow, Ryazansky Prospekt, 99-1), Professor, Department of International Economics and Management, Ural Federal University named after the first President of Russia B.N. Yeltsin, Ekaterinburg, Russia (620002, Ekaterinburg, Mira street, 19); ORCID 0000-0002-0736-1533; e-mail: s.lukyanov@mail.ru.
Groznykh Rogneda Ivanovna
Post-Graduate Student, Department of Econometrics and Statistics, Ural Federal University named after the first President of Russia B.N. Yeltsin, Ekaterinburg, Russia (620002, Ekaterinburg, Mira street, 19); ORCID 0000-0001-5539-3145; e-mail: rogneda.groznykh@urfu.ru.
For citation
Drapkin I.M., Lukyanov S.A., Groznykh R.I. Foreign Direct Investment and International Trade: Empirical Analysis of Mutual Influence. Journal of Applied Economic Research, 2020, Vol. 19, No. 4, 441-457. DOI: 10.15826/vestnik.2020.19.4.021.
Article info
Received September 9, 2020; Revised September 20, 2020; Accepted October 16, 2020.
DOI: http://dx.doi.org/10.15826/vestnik.2020.19.4.021
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