Trade and foreign direct investment in Latin America and Southeast Asia: temporal causality analysis

• Published in: Journal of international development Vol. 12; no. 7; pp. 903 - 924
• Main Authors: De Mello Jr, Luiz R., Fukasaku, Kiichiro
• Format: Journal Article
• Language: English
• Published: Chichester, UK John Wiley & Sons, Ltd 01.10.2000; Philip Allan; Wiley Periodicals Inc
• Series: Journal of International Development
• Subjects: Causality; Copyright; Correlation analysis; Developing countries; Economic development; Economic growth; Economic history; Economic models; Emerging markets; Exports; Foreign direct investment; Foreign exchange rates; Foreign investment; Foreign trade; Host country; Hypotheses; International trade; Latin America; LDCs; Macroeconomics; Southeast Asia; Studies; Trade flows; Asia; Latin America
• ISSN: 0954-1748; 1099-1328
• DOI: 10.1002/1099-1328(200010)12:7<903::AID-JID695>3.0.CO;2-8

This paper examines the relationship between foreign trade and foreign direct investment (FDI) in selected Latin American and Southeast Asian economies in the period 1970 – 94. The hypothesis of complementarity/substitution between FDI and foreign trade is tested using bivariate VECM models and temporal causality analysis. The impact of FDI on the trade balance is also assessed and weak exogeneity tests are performed. It is found that the impact of FDI on the trade balance is stronger in trade‐oriented economies, and that net FDI inflows are more sensitive to changes in exports in Southeast Asian countries, than in their Latin American counterparts, given the export‐orientation of foreign investment in the former region. Copyright © 2000 John Wiley & Sons, Ltd.