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Panel Causality Relationship among FDI and Trade (Evidence from 16 Advanced Europe Countries)

Author

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  • Farshid Pourshahabi

    (Ph.D. Student in Economics, Department of Economics, Sistan and Baluchestan University, Zahedan, Iran. (Corresponding Author))

  • Ehsan Salimi Soderjani

    (Ph.D. Student in Economics, Department of Economics, Tehran University, Tehran, Iran.)

  • Davood Mahmoudinia

    (Ph.D. Student in Economics, Department of Economics, Isfahan University, Isfahan, Iran)

Abstract

This study applied panel unit root, panel co-integration and panel causality tests to distinguish the position of short run and long run causality among foreign direct investment (FDI) and trade in a panel of 16 advanced European countries over the period 1976-2008, 528 observations were incorporated into the model. The results show that there is bidirectional causality among FDI-Export and FDI-Import in the short run while the long run causality runs from import and export to FDI. Furthermore, there is unidirectional causality from FDI to total trade in the long run and bidirectional causality in the short run. Therefore, increase in FDI led to increase in export and import in the short run and these led to increase in total trade in the short run. Thus, attractive FDI policies in trade oriented economies can be used to promote the level of trade, and expanding trade policies are helpful as well to attract more FDI in these set of countries.

Suggested Citation

  • Farshid Pourshahabi & Ehsan Salimi Soderjani & Davood Mahmoudinia, 2013. "Panel Causality Relationship among FDI and Trade (Evidence from 16 Advanced Europe Countries)," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 18(1), pages 115-133, winter.
    • Handle: RePEc:eut:journl:v:18:y:2013:i:1:p:115
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    References listed on IDEAS

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    1. Bruce A. Blonigen & KaSaundra Tomlin & Wesley W. Wilson, 2019. "Tariff-Jumping FDI and Domestic Firms’ Profits," World Scientific Book Chapters, in: Foreign Direct Investment, chapter 14, pages 473-500, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Saibu Muibi Olufemi & Mesagan Ekundayo Peter, 2016. "Environmental Quality and Growth Effects of Foreign Direct Investment in Nigeria," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 20(2), pages 125-140, Spring.

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    Keywords

    FDI; Trade; Panel Causality; Europe;
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