[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/eee/riibaf/v45y2018icp15-29.html
   My bibliography  Save this article

Effect of multilateral trade liberalization on foreign direct investment outflows amid structural economic vulnerability in developing countries

Author

Listed:
  • Gnangnon, Sèna Kimm
Abstract
This paper examines whether both multilateral trade policy liberalization and structural economic vulnerability (EVI) matter for outward foreign direct investment (FDI), which like FDI inflows, could substantially contribute to economic development in developing countries. The empirical analysis is carried out on a panel data of 112 countries over the period 1998–2013. It leads to two major conclusions: first, multilateral trade policy liberalization encourages outward FDI, while higher structural economic vulnerability discourages it. The lower the countries' development level, the higher the positive impact of multilateral trade liberalization on FDI outflows. Likewise, the lower the countries’ development level, the greater the negative effect of EVI on outward FDI. Second, the positive effect of multilateral trade policy liberalization on FDI outflows could be undermined by the rise in structural economic vulnerability. From a policy perspective, these findings suggest that reviving multilateral talks in the World Trade Organization (WTO) and reaching concrete outcomes that could be benefit all WTO Members, and promote FDI outflows, particularly for developing countries. Moreover, the support of the international community to governments in developing countries (in particular poorest ones) is critical to mitigate structural economic vulnerability faced by these countries and helps these countries take advantage of the multilateral trade policy liberalization, notably in terms here of FDI outflows.

Suggested Citation

  • Gnangnon, Sèna Kimm, 2018. "Effect of multilateral trade liberalization on foreign direct investment outflows amid structural economic vulnerability in developing countries," Research in International Business and Finance, Elsevier, vol. 45(C), pages 15-29.
    • Handle: RePEc:eee:riibaf:v:45:y:2018:i:c:p:15-29
    DOI: 10.1016/j.ribaf.2017.07.128
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0275531917303768
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ribaf.2017.07.128?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Neary, J. Peter, 2009. "Trade costs and foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 207-218, March.
    2. Patrick GUILLAUMONT & Sylviane GUILLAUMONT JEANNENEY, 2009. "Accounting for Vulnerability of African Countries in Performance Based Aid Allocation," Working Papers P08, FERDI.
    3. Sèna Kimm Gnangnon & Harish Iyer, 2017. "Structural Economic Vulnerability, Trade Policy and FDI Inflows," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 8(01), pages 1-35, February.
    4. Patrick Guillaumont, 2009. "An Economic Vulnerability Index: Its Design and Use for International Development Policy," Post-Print hal-00416800, HAL.
    5. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-1151, December.
    6. Mona Haddad & Ben Shepherd, 2011. "Managing Openness : Trade and Outward-oriented Growth After the Crisis," World Bank Publications - Books, The World Bank Group, number 2283.
    7. James R. MARKUSEN, 2021. "Multinationals, Multi-Plant Economies, And The Gains From Trade," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 1, pages 3-24, World Scientific Publishing Co. Pte. Ltd..
    8. Dabla-Norris, Era & Minoiu, Camelia & Zanna, Luis-Felipe, 2015. "Business Cycle Fluctuations, Large Macroeconomic Shocks, and Development Aid," World Development, Elsevier, vol. 69(C), pages 44-61.
    9. Goh, Soo Khoon & Wong, Koi Nyen & Tham, Siew Yean, 2013. "Trade linkages of inward and outward FDI: Evidence from Malaysia," Economic Modelling, Elsevier, vol. 35(C), pages 224-230.
    10. Patrick Guillaumont & Sylviane Guillaumont Jeanneney & Désiré Vencatachellum, 2009. "Accounting for Vulnerability of African Countries in Performance Based Aid Allocation," Post-Print hal-00444193, HAL.
    11. Bolling, H. Christine & Shane, Mathew & Roe, Terry L., 2007. "Exchange Rates and U.S. Foreign Direct Investment in the Global Processed Food Industry," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 36(2), pages 1-9, October.
    12. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    13. James R. Markusen & Anthony J. Venables, 2021. "Multinational firms and the new trade theory," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 3, pages 47-67, World Scientific Publishing Co. Pte. Ltd..
    14. Barry Eichengreen & Douglas A. Irwin, 1998. "The Role of History in Bilateral Trade Flows," NBER Chapters, in: The Regionalization of the World Economy, pages 33-62, National Bureau of Economic Research, Inc.
    15. George J. Georgopoulos, 2008. "Cross-border mergers and acquisitions: does the exchange rate matter? Some evidence for Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 450-474, May.
    16. Collie, David R., 2011. "Multilateral trade liberalisation, foreign direct investment and the volume of world trade," Economics Letters, Elsevier, vol. 113(1), pages 47-49, October.
    17. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
    18. Dabla-Norris, Era & Bal Gündüz, Yasemin, 2014. "Exogenous Shocks and Growth Crises in Low-Income Countries: A Vulnerability Index," World Development, Elsevier, vol. 59(C), pages 360-378.
    19. Matthew Cole & Robert Elliott & Jing Zhang, 2009. "Corruption, Governance and FDI Location in China: A Province-Level Analysis," Journal of Development Studies, Taylor & Francis Journals, vol. 45(9), pages 1494-1512.
    20. Gnangnon, Sèna Kimm, 2013. "Structural vulnerability and excessive public indebtedness in CFA Franc Zone countries," Economic Modelling, Elsevier, vol. 35(C), pages 816-832.
    21. Globerman, Steven & Shapiro, Daniel, 2002. "Global Foreign Direct Investment Flows: The Role of Governance Infrastructure," World Development, Elsevier, vol. 30(11), pages 1899-1919, November.
    22. Carmen Stoian & Fragkiskos Filippaios, 2008. "Foreign Direct Investment in Central, Eastern and South Eastern Europe: an 'eclectic' approach to Greek investments," International Journal of Entrepreneurship and Innovation Management, Inderscience Enterprises Ltd, vol. 8(5), pages 542-564.
    23. Gordon Cordina, 2004. "Economic Vulnerability And Economic Growth: Some Results From A Neo-Classical Growth Modelling Approach," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 29(2), pages 21-39, December.
    24. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, February.
    25. Patrick GUILLAUMONT, 1999. "On The Economic Vulnerability Of Low Income Countries révisé, cf 2000.16," Working Papers 199916, CERDI.
    26. Sosso FEINDOUNO & Michaël GOUJON, 2016. "The retrospective economic vulnerability index, 2015 update," Working Papers P147, FERDI.
    27. Anuradha Seth & Amr Ragab, 2012. "Macroeconomic Vulnerability in Developing Countries: Approaches and Issues," One Pager 152, International Policy Centre for Inclusive Growth.
    28. Joël CARIOLLE, 2011. "The Economic Vulnerability Index - 2010 Update," Working Papers I09, FERDI.
    29. Norman V. Loayza & Claudio Raddatz, 2007. "The Structural Determinants of External Vulnerability," The World Bank Economic Review, World Bank, vol. 21(3), pages 359-387, October.
    30. John Dunning, 1981. "Explaining the international direct investment position of countries: Towards a dynamic or developmental approach," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 117(1), pages 30-64, March.
    31. Patrick Guillaumont & Laurent Wagner, 2012. "Aid and Growth Accelerations: Vulnerability Matters," WIDER Working Paper Series wp-2012-031, World Institute for Development Economic Research (UNU-WIDER).
    32. Goh, Soo Khoon & Wong, Koi Nyen, 2011. "Malaysia's outward FDI: The effects of market size and government policy," Journal of Policy Modeling, Elsevier, vol. 33(3), pages 497-510, May.
    33. Peter J Buckley & L Jeremy Clegg & Adam R Cross & Xin Liu & Hinrich Voss & Ping Zheng, 2007. "The determinants of Chinese outward foreign direct investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 38(4), pages 499-518, July.
    34. Asiedu, Elizabeth, 2002. "On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different?," World Development, Elsevier, vol. 30(1), pages 107-119, January.
    35. Wladimir Andreff, 2002. "The new multinational corporations from transition countries," Post-Print halshs-00274655, HAL.
    36. Frank Barry & Holger Gorg & Andrew Mcdowell, 2003. "Outward FDI and the Investment Development Path of a Late-industrializing Economy: Evidence from Ireland," Regional Studies, Taylor & Francis Journals, vol. 37(4), pages 341-349.
    37. John Cantwell & John H Dunning & Sarianna M Lundan, 2010. "An evolutionary approach to understanding international business activity: The co-evolution of MNEs and the institutional environment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(4), pages 567-586, May.
    38. John H. Dunning & Sarianna M. Lundan, 2008. "Multinational Enterprises and the Global Economy, Second Edition," Books, Edward Elgar Publishing, number 3215.
    39. Densil A. Williams, 2009. "Determinants of Outward Foreign Direct Investments from Small Island Developing States," American Journal of Economics and Business Administration, Science Publications, vol. 1(2), pages 47-56, June.
    40. Choi, Jongmoo Jay & Jeon, Bang Nam, 2007. "Financial factors in foreign direct investments: A dynamic analysis of international data," Research in International Business and Finance, Elsevier, vol. 21(1), pages 1-18, January.
    41. Andreff, Wladimir, 2002. "The new multinational corporations from transition countries," Economic Systems, Elsevier, vol. 26(4), pages 371-379, December.
    42. Bano , Sayeeda & Tabbada, Jose, 2015. "Foreign Direct Investment Outflows : Asian Developing Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 30(2), pages 359-398.
    43. Sèna Kimm Gnangnon, 2017. "Multilateral Trade Liberalisation and Foreign Direct Investment Inflows," Economic Affairs, Wiley Blackwell, vol. 37(1), pages 66-84, February.
    44. Patrick Guillaumont, 2009. "An Economic Vulnerability Index: Its Design and Use for International Development Policy," Oxford Development Studies, Taylor & Francis Journals, vol. 37(3), pages 193-228.
    45. Alvaro Cuervo-Cazurra & Mehmet Genc, 2008. "Transforming disadvantages into advantages: developing-country MNEs in the least developed countries," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(6), pages 957-979, September.
    46. Patrick Guillaumont & Laurent Wagner, 2012. "Aid and Growth Accelerations: Vulnerability Matters," Post-Print halshs-00692388, HAL.
    47. Tolentino, Paz Estrella, 2010. "Home country macroeconomic factors and outward FDI of China and India," Journal of International Management, Elsevier, vol. 16(2), pages 102-120, June.
    48. George J. Georgopoulos, 2008. "Cross‐border mergers and acquisitions: does the exchange rate matter? Some evidence for Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(2), pages 450-474, May.
    49. Lino Pascal Briguglio, 2016. "Exposure to external shocks and economic resilience of countries: evidence from global indicators," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 43(6), pages 1057-1078, November.
    50. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    51. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2010. "The worldwide governance indicators : methodology and analytical issues," Policy Research Working Paper Series 5430, The World Bank.
    52. Naude, Wim & Santos-Paulino, Amelia U. & McGillivray, Mark, 2009. "Vulnerability in Developing Countries," WIDER Working Papers rb02-08, World Institute for Development Economic Research (UNU-WIDER).
    53. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-471, June.
    54. Marco Fugazza & Claudia Trentini, 2014. "Empirical Insights On Market Access And Foreign Direct Investment," UNCTAD Blue Series Papers 63, United Nations Conference on Trade and Development.
    55. Ivar Kolstad & Arne Wiig, 2009. "What determines Chinese outward FDI?," CMI Working Papers 3, CMI (Chr. Michelsen Institute), Bergen, Norway.
    56. Kalotay, Kalman, 2008. "Russian transnationals and international investment paradigms," Research in International Business and Finance, Elsevier, vol. 22(2), pages 85-107, June.
    57. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    58. repec:unu:wpaper:wp2012-31 is not listed on IDEAS
    59. Stoian, Carmen, 2013. "Extending Dunning's Investment Development Path: The role of home country institutional determinants in explaining outward foreign direct investment," International Business Review, Elsevier, vol. 22(3), pages 615-637.
    60. Yao, Shujie & Wang, Pan & Zhang, Jing & Ou, Jinghua, 2016. "Dynamic relationship between China's inward and outward foreign direct investments," China Economic Review, Elsevier, vol. 40(C), pages 54-70.
    61. Sèna Kimm Gnangnon, 2014. "Does structural economic vulnerability matter for public indebtedness in developing countries?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 41(5), pages 644-671, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gnangnon, Sèna Kimm, 2019. "Trade Policy Space and Foreign Direct Investment Inflows," EconStor Preprints 196149, ZBW - Leibniz Information Centre for Economics.
    2. Zhihui Li & Jia Wu & Xiaolin Cui & Zhaojuan Mi & Lu Peng, 2022. "Assessment and influencing factors analysis of economic system vulnerability of the Belt and Road Initiative countries," PLOS ONE, Public Library of Science, vol. 17(1), pages 1-17, January.
    3. Ai Ngoc Nhan Le & Ha Pham & Dung Thi Ngoc Pham & Khoa Dang Duong, 2023. "Political stability and foreign direct investment inflows in 25 Asia-Pacific countries: the moderating role of trade openness," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-9, December.
    4. Fengting Zhang & Yang Lv & Md Nazirul Islam Sarker, 2022. "Spatio-Temporal Evolution and Development Path of Industry–University–Research Cooperation and Economic Vulnerability: Evidence from China’s Yangtze River Economic Belt," Sustainability, MDPI, vol. 14(19), pages 1-19, October.
    5. Rehman, Faheem Ur & Khan, Muhammad Asif & Khan, Muhammad Atif & Pervaiz, Khansa & Liaqat, Idrees, 2020. "The causal, linear and nonlinear nexus between sectoral FDI and infrastructure in Pakistan: Using a new global infrastructure index," Research in International Business and Finance, Elsevier, vol. 52(C).
    6. Gnangnon, Sèna Kimm, 2022. "Effect of structural economic vulnerability on the participation in international trade," EconStor Preprints 262004, ZBW - Leibniz Information Centre for Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sèna Kimm Gnangnon & Harish Iyer, 2017. "Structural Economic Vulnerability, Trade Policy and FDI Inflows," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 8(01), pages 1-35, February.
    2. Sèna Kimm Gnangnon, 2017. "Multilateral Trade Liberalisation and Foreign Direct Investment Inflows," Economic Affairs, Wiley Blackwell, vol. 37(1), pages 66-84, February.
    3. Gnangnon, Sèna Kimm, 2019. "Trade Policy Space and Foreign Direct Investment Inflows," EconStor Preprints 196149, ZBW - Leibniz Information Centre for Economics.
    4. Sèna Kimm Gnangnon, 2020. "Trade Openness and Diversification of External Financial Flows for Development: An Empirical Analysis," South Asian Journal of Macroeconomics and Public Finance, , vol. 9(1), pages 22-57, June.
    5. Stoian, Carmen, 2013. "Extending Dunning's Investment Development Path: The role of home country institutional determinants in explaining outward foreign direct investment," International Business Review, Elsevier, vol. 22(3), pages 615-637.
    6. Gnangnon, Sèna Kimm, 2017. "Structural economic vulnerability, openness and bilateral development aid flows," Economic Analysis and Policy, Elsevier, vol. 53(C), pages 77-95.
    7. Gnangnon, Sèna Kimm, 2022. "Effect of structural economic vulnerability on the participation in international trade," EconStor Preprints 262004, ZBW - Leibniz Information Centre for Economics.
    8. Brun, Jean-François & Gnangnon, Sèna Kimm, 2017. "Does trade openness contribute to driving financing flows for development?," WTO Staff Working Papers ERSD-2017-06, World Trade Organization (WTO), Economic Research and Statistics Division.
    9. Gnangnon, Sèna Kimm, 2020. "Aid for Trade flows and Poverty Reduction in Recipient-Countries," EconStor Preprints 213807, ZBW - Leibniz Information Centre for Economics.
    10. Yao, Shujie & Wang, Pan & Zhang, Jing & Ou, Jinghua, 2016. "Dynamic relationship between China's inward and outward foreign direct investments," China Economic Review, Elsevier, vol. 40(C), pages 54-70.
    11. Sèna Kimm Gnangnon, 2022. "Aid for Trade, export product diversification, and foreign direct investment," Review of Development Economics, Wiley Blackwell, vol. 26(1), pages 534-561, February.
    12. Sena Kimm Gnangnon & Jean-François Brun, 2018. "Impact of Multilateral Trade Liberalization on Resource Revenue," Economies, MDPI, vol. 6(4), pages 1-19, November.
    13. Sèna Kimm Gnangnon, 2022. "Does poverty deter foreign direct investment flows to developing countries?," International Journal of Economic Policy Studies, Springer, vol. 16(1), pages 297-330, February.
    14. Sèna Kimm Gnangnon, 2021. "Exchange rate pressure, fiscal redistribution and poverty in developing countries," Economic Change and Restructuring, Springer, vol. 54(4), pages 1173-1203, November.
    15. Gnangnon, Sèna Kimm, 2022. "Effect of the utilization of non-reciprocal trade preferences offered by the QUAD countries on beneficiary countries' economic complexity," Journal of the Japanese and International Economies, Elsevier, vol. 65(C).
    16. Nguyen, Canh Phuc & Su, Thanh Dinh, 2021. "Easing economic vulnerability: Multidimensional evidence of financial development," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 237-252.
    17. Gnangnon Sèna Kimm, 2017. "Empirical Evidence on the Impact of Multilateral Trade Liberalization on Domestic Trade Policy," Global Economy Journal, De Gruyter, vol. 17(3), pages 1-14, September.
    18. Gnangnon, Sèna Kimm & Iyer, Harish, 2021. "Effect of Aid for Trade and Foreign Direct Investment Inflows on the Utilization of Unilateral Trade Preferences offered by the QUAD countries," EconStor Preprints 238211, ZBW - Leibniz Information Centre for Economics.
    19. Alvaro Cuervo-Cazurra & Bernardo Silva-Rêgo & Ariane Figueira, 2022. "Financial and fiscal incentives and inward foreign direct investment: When quality institutions substitute incentives," Journal of International Business Policy, Palgrave Macmillan, vol. 5(4), pages 417-443, December.
    20. Nguyen Thi Tuong Anh & Hung Quang Doan & Tuan Anh Bui & Nam Hoang Vu & Duong Thuy Thanh Le, 2022. "A Revisit of Motives for Chinese Outward Foreign Direct Investment: The Role of the Institution in Host Countries," SAGE Open, , vol. 12(4), pages 21582440221, December.

    More about this item

    Keywords

    Multilateral trade policy liberalization; Structural economic vulnerability; Outward foreign direct investment outflows;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:riibaf:v:45:y:2018:i:c:p:15-29. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ribaf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.