Causal Relation between Trade and Investment in the SAARC Region

Rahul Choudhury () and Dinkar Nayak

Chapter 6 in Trade and Investment in South Asia:An Analysis, 2019, pp 137-153 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter analyzes the relationship between FDI and trade in the SAARC countries using co-integration and Granger causality tests applied to panel data to understand whether trade and FDI are complementary or substitute each other, i.e., whether a greater FDI inflow held by a nation is associated with decreases or increases in its exports and imports. The results reveal that in the case of SAARC region, higher FDI inflows leads to a higher trade volume. The results also indicate a unidirectional causality from FDI to trade, which could be a good tool to prioritize the allocation of resources across sectors to promote FDI to increase international trade.

Keywords: South Asia; Foreign Direct Investment; South Asian Association for Regional Cooperation; SAARC; South Asian Free Trade Area; SAFTA; FDI; Ease of Doing Business; South Asian Policy (search for similar items in EconPapers)
JEL-codes: F13 F4 P45 (search for similar items in EconPapers)
Date: 2019
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