Trade, foreign direct investment and economic growth in Asian economies

Authors: Liu, Xiaohui1; Shu, Chang2; Sinclair, Peter3

Source: Applied Economics, Volume 41, Number 13, May 2009 , pp. 1603-1612(10)

Publisher: Routledge, part of the Taylor & Francis Group

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Despite the increasing role of foreign direct investment (FDI) in economic development, very limited research has been carried out on the causal links between trade, FDI and economic growth in Asian economies. This study examines empirically the inter-play between exports, imports, FDI and economic growth for nine Asian economies by conducting multivariate causality tests in the vector error correction model (VECM) framework. The results reveal two-way causal connections between trade, inward FDI, inward merger and acquisitions (M&As) and growth for most of the sample economies. There is a unidirectional causal link running from outward M&As to growth and trade. These findings suggest that export expansion, import liberalization, FDI inflows and inward M&As are integral elements of the growth process in Asian economies.

Document Type: Research Article


Affiliations: 1: Business School, Loughborough University, Leicestershire, LE11 3TU, UK 2: Hong Kong Monetary Authority, Hong Kong, PR China 3: Department of Economics, University of Birmingham, Birmingham, B15 2TT, UK

Publication date: May 1, 2009

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