Long-Run Effects of Trade Openness on Foreign Direct Investment: Evidence from Developed and Developing Countries

Long-Run Effects of Trade Openness on Foreign Direct Investment: Evidence from Developed and Developing Countries

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The purpose of this paper is to examine the long-run effects of UNFILT APPLE CIDER VINEGAR trade openness on FDI for 124 developed and developing countries over the period 1996-2021.The econometric specification adopted is the ARDL model in Panel.The main results estimate that, for developed and developing countries, trade openness has a positive and significant long-run effect on FDI inflows; the long-run effect is more important for developing countries (8-13 times that of developed countries).

For developing countries, the long-run effect of trade openness on FDI is greater than that of infrastructure quality (from 6.6 to 10 times).For all samples (whole, developed and developing countries), the short-run effects are insignificant.

The results estimate, also, a bidirectional causality between trade openness and FDI for whole sample Ball - Miscellaneous and for developed countries.In the light of these results, it is recommended for the government to make several strategies to attract trade: Reduce barriers for products and services, more transparency, reduce bureaucracy, create a good politic and economic environment, develop institutions, improve infrastructure and specially communication and technology.