Foreign Direct Investment and Trade Openness: The Case of Developing Economies

• Published in: Social indicators research Vol. 106; no. 2; pp. 323 - 331
• Main Authors: Liargovas, Panagiotis G., Skandalis, Konstantinos S.
• Format: Journal Article
• Language: English
• Published: Dordrecht Springer 01-04-2012; Springer Netherlands; Springer Nature B.V
• Subjects: Africa; Asia; Capital flow; Causality; Commonwealth of Independent States; Correlation; Developing countries; Developing Nations; Development sociology; Eastern Europe; Economic Development; Economic indicators; Economic investment; Economics; Europe (East); Fair trade; Foreign Countries; Foreign direct investment; Foreign direct investments; Foreign Investment; Foreign Policy; Gross domestic product; Host country; Human Capital; Human Geography; International Trade; Investment; Latin America; LDCs; Legal Aid; Longitudinal Studies; Measurement Techniques; Microeconomics; Policy Analysis; Political risk; Predictor Variables; Public Health; Public Policy; Quality of Life Research; Regional analysis; Regression (Statistics); Regression analysis; Risk factors; Social Sciences; Sociology; Sociology of economy and development; Studies; Tariffs; Trade; Trade barriers; Trade development; Trade liberalization; Trade restrictions; Asia; Europe; Africa; FDI; Trade openness; Developing economies; Foreign Investment; Economic effectiveness; Developing Countries
• ISSN: 0303-8300; 1573-0921
• DOI: 10.1007/s11205-011-9806-9

This paper examines the importance of trade openness for attracting Foreign Direct Investment (FDI) inflows, using a sample of 36 developing economies for the period 1990–2008. It provides a direct test of causality between FDI inflows, trade openness and other key variables in developing regions of the world: Latin America, Asia, Africa, CIS (Commonwealth of Independent States) and Eastern Europe. Trade openness is measured by using eight different indicators. The main empirical findings of the panel regression analysis reveal that in the long run, trade openness contributes positively to the inflow of FDI in developing economies.