Does Outward FDI Matter in International Trade? Evidence from Malaysia

Soo Khoon Goh, Koi Wong and Siew Yean Tham

MPRA Paper from University Library of Munich, Germany

Abstract: Developing and transition economies are an increasingly important source of outward foreign direct investment (OFDI). The objective of this paper is to fill the gap in the literature regarding outward foreign direct investment by adopting the well known gravity model to examine the relationship between trade (export and import), inward and outward FDI using Malaysia as a case. This contributes to the literature as previous studies on OFDI in Malaysia have focused primarily on the determinants of these outward flows, and there are no studies examining the impact of OFDI on trade. Our findings reveal that inward foreign direct investment (IFDI) conforms to the observed pattern of a complementary relationship between FDI and trade while OFDI and trade linkages are not significant. The empirical results also indicate that Malaysia has yet to follow the trajectory of developed economies in its shift from being a net capital importer to a capital exporter due to the lack of trade linkages between OFDI and trade. This further implies that the country may not be able to reap the potential benefits of OFDI that accrue through efficiency gains from specialization and scale advantages that are generated through trade channels.

Keywords: Outward FDI; trade; multinationals; Malaysia (search for similar items in EconPapers)
JEL-codes: F23 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-dev, nep-ifn, nep-int and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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