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FDI outflows and international trade nexus: Empirical evidence from country income groups

Author

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  • Osarumwense Osabuohien-Irabor

    (Ural Federal University, Ekaterinburg, Russia; Ambrose Alli University, Ekpoma, Nigeria)

  • Igor M. Drapkin

    (Ural Federal University, Ekaterinburg, Russia)

Abstract

Relevance. Outward foreign direct investment (OFDI) and international trade are traditionally viewed as key drive of economic integration and globalization. At the same time, the relationship between these phenomena is ambiguous both from theoretical and empirical points of view. This study contributes to the existing literature by analyzing the relationship between outward foreign direct investment and international trade for countries with different levels of income per capita. Research objectives. This study examines the dynamic interplay between OFDI and international trade in different income groups such as low-income (LIC), low-middle income (LMIC), upper-middle income (UMIC), and high-income (HIC) groups. Data and methods. Based on World bank country income classifications, data from 161 countries are divided into LIC, LMIC, UMIC, and HIC for the period 1998-2019. The study employs the Difference (DFF-GMM) and two-step System Generalized Method of Moments (SYS-GMM) techniques to explore the OFDI-trade nexus. Results. The results are mixed and significant providing support for both complementarity and substitutive FDI. Findings suggest that OFDI and trade nexus in LIC have negative impact indicating a substitutive effect, but in other economies, the impact is significantly positive and complementary. Conclusions. Trade and OFDI nexus are substitutive in LIC, hence sound economic policy, aimed at increasing country's international competitiveness, should be adopted. However, trade and OFDI in LMIC, UMIC and HIC economies have mutually complementary relationship that facilitates the improvement of the domestic economy. Thus, government should promote policies that sustain the benefits of OFDI and trade interactions.

Suggested Citation

  • Osarumwense Osabuohien-Irabor & Igor M. Drapkin, 2022. "FDI outflows and international trade nexus: Empirical evidence from country income groups," R-Economy, Ural Federal University, Graduate School of Economics and Management, vol. 8(4), pages 340-355.
    • Handle: RePEc:aiy:journl:v:8:y:2022:i:4:p:340-355
    DOI: https://doi.org/10.15826/recon.2022.8.4.026
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    More about this item

    Keywords

    Outward FDI; trade; exports; imports; system GMM; country income groups;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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