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Does FDI have differential impacts on exports? Evidence from developing countries

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  • Pravakar Sahoo
  • Ranjan Kumar Dash

Abstract

Theoretical literature indicates that foreign direct investment (FDI) inflows can, directly and indirectly, promote exports by augmentation of domestic capital, technological and knowledge-based spillovers, improvements in competitiveness, and strengthening export channels. However, empirical studies have shown that the benefits of FDI for exports may not be automatic and could vary according to the characteristics of the recipient country. Accordingly, the objective of the current study is to understand the implications of foreign investment for exports of 93 developing countries during 2000–2017 using panel data analysis. It also distinguishes between different types of developing countries – dividing the sample into lower-income countries (LICs), lower and middle-income countries (LMICs), and emerging countries – to study the differential effects of FDI for these different country groups. The study finds that FDI complements exports, and the complementary effect is contingent upon the development levels of the host country. FDI is most effective for promoting exports for emerging countries and least effective for LICs. Accordingly, the study advocates for well-designed policies that prioritize channeling FDI to strategic sectors and push for improvements in the quality of human capital, financial markets, and infrastructure.

Suggested Citation

  • Pravakar Sahoo & Ranjan Kumar Dash, 2022. "Does FDI have differential impacts on exports? Evidence from developing countries," International Economics, CEPII research center, issue 172, pages 227-237.
    • Handle: RePEc:cii:cepiie:2022-q3-172-15
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    File URL: https://www.sciencedirect.com/science/article/pii/S2110701722000786
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    Citations

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    Cited by:

    1. Ariel Herbert Fambeu, 2024. "Export Performance Under Imperfect Competition: Evidence from Manufacturing Firms in Cameroon," Journal of Industry, Competition and Trade, Springer, vol. 24(1), pages 1-18, December.
    2. Radovan Kastratović, 2023. "Exporting decision of agricultural firms: The role of foreign direct investment," Agribusiness, John Wiley & Sons, Ltd., vol. 39(4), pages 960-984, October.
    3. Osei, Michael J. & Kim, Jaebeom, 2023. "Financial development and the growth effect of foreign direct investment: Does one size fit all?," International Economics, Elsevier, vol. 173(C), pages 276-283.
    4. Pooja Thakur-Wernz & Helena Barnard & Marianne Matthee, 2024. "Knightian uncertain violence and the challenge of FDI-assisted development: policy recommendations where civilian lives are at risk," Journal of International Business Policy, Palgrave Macmillan, vol. 7(3), pages 356-390, September.
    5. 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.
    6. Idrys Fransmel Okombi & Beaudelaire Francois Tsinguia-Kenfack, 2024. "Foreign direct investment and economic complexity in developing countries: does public expenditure on education matter?," SN Business & Economics, Springer, vol. 4(1), pages 1-38, January.

    More about this item

    Keywords

    FDI; Exports; LICs; LMICs; ECs; GMM Models;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F10 - International Economics - - Trade - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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