Structure and dynamics of global capital and international trade: Analysis of the relationship between exports and foreign direct investment (FDI) from 2001 to 2006

Abstract

Abstract This article attempts to explore the empirical evidence for the linkage between exports and foreign direct investment (FDI) by examining its relationship with over 140 countries from 2001 to 2006. Through using the comprehensive bilateral cross‐country panel exports and FDI data set for the first time, this article provides more insights about the relationships between exports and FDI with developed–developed country pairs as well as with developed–developing country pairs, respectively. By applying augmented gravity models, this article justifies that exports and FDI are complementary as previous studies posit. Furthermore, such complementary relationship is more positive and significant with developed–developing country pairs when compared to other combinations (developed–developed and developing–developing pairs). To be more specific, FDI from developed to developing countries promotes more exports, while FDI from developed countries to developed countries is less important in promoting exports.