The Nexus Between Trade Openness and Foreign Direct Investment Amid Structural Economic Vulnerability in Developing Countries

Chi Quynh Nguyen and Thai-Ha Le
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Chi Quynh Nguyen: Fulbright University Vietnam

A chapter in Globalization, Deglobalization, and New Paradigms in Business, 2021, pp 61-86 from Springer

Abstract: Abstract This study aims to evaluate the relationship between trade openness and foreign direct investment (FDI), considering the complex effects of economic vulnerability in developing countries. Non-Least Developed Countries (non-LDCs) are used as the focus of this research effort. The empirical results from the data of 89 non-LDCs countries from 1990 to 2018 indicate the important significant effect of trade openness on FDI inflows in both the short term and the long term for developing countries. However, for the Emerging Market Countries (EMCs), economic growth is the key investment-driven factor of FDI growth. Though the economic vulnerability index (EVI) has no obvious impact on FDI in the short term, the interaction between EVI and trade openness has a negative effect on FDI; additionally, EVI reduces significantly the net effect of trade openness. In average effect, EVI negatively affects FDI growth. The results indicate the impact of EVI on FDI inflows of countries pursuing trade liberalization, as well as reflect the impact of trade policies of countries on the structural vulnerability of the economy.

Keywords: Trade openness; FDI; Economic vulnerability; Developing countries; Trade liberalization; C33; F14; F2; F62 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-81584-4_4

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DOI: 10.1007/978-3-030-81584-4_4

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