Trade and foreign direct investment: Evidence from South East European countries and new European Union member states

Bardhyl Dauti

Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, 2016, vol. 34, issue 1, 63-89

Abstract: The goal of this research is to provide an empirical assessment of the complementarity or substituting relationship between Trade and FDI in a link to country characteristics, using bilateral level data between FDI and trade for the period 1994 – 2010. In the research, an augmented gravity model has been used to test the relationship between Trade (both export and import), FDI stock and country characteristics between OECD-20 countries and SEE-5 and EU-NMS-10 countries. The empirical model considers how the relationship between FDI and Trade determine whether type of FDI into SEE-5 and EU-NMS-10 from core OECD-20 countries, is vertical or horizontal. With regard to the relationship between exports and FDI, the findings of the research showed mixed evidence, thus supporting vertical FDI for EU-NMS-10 countries, and horizontal FDI for SEE-5 countries. On the other hand, based on the relationship between imports and FDI, the results of the research supported vertical FDI for both EU-NMS-10 and SEE-5 group of countries. The basic conclusion is that the research provides an empirical evidence on the mixed nature of FDI into the host SEE-5 and EU-NMS-10 countries, supporting both complementary and substituting relationship between trade and FDI in the host countries.

Keywords: foreign direct investment; trade; complements; substitutes; gravity model (search for similar items in EconPapers)
JEL-codes: F12 F14 F21 F23 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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