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Causal Relation between Trade and Investment in the SAARC Region

In: Trade and Investment in South Asia An Analysis

Author

Listed:
  • Rahul Choudhury
  • Dinkar Nayak

Abstract

This chapter analyzes the relationship between FDI and trade in the SAARC countries using co-integration and Granger causality tests applied to panel data to understand whether trade and FDI are complementary or substitute each other, i.e., whether a greater FDI inflow held by a nation is associated with decreases or increases in its exports and imports. The results reveal that in the case of SAARC region, higher FDI inflows leads to a higher trade volume. The results also indicate a unidirectional causality from FDI to trade, which could be a good tool to prioritize the allocation of resources across sectors to promote FDI to increase international trade.

Suggested Citation

  • Rahul Choudhury & Dinkar Nayak, 2019. "Causal Relation between Trade and Investment in the SAARC Region," World Scientific Book Chapters, in: Trade and Investment in South Asia An Analysis, chapter 6, pages 137-153, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811206573_0006
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    More about this item

    Keywords

    South Asia; Foreign Direct Investment; South Asian Association for Regional Cooperation; SAARC; South Asian Free Trade Area; SAFTA; FDI; Ease of Doing Business; South Asian Policy;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • P45 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - International Linkages

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