Using industry-specific FDI and output data within a panel
cointegration framework, Chakraborty and Nunnenkamp (2008) concluded that the impacts
of FDI on economic growth differ broadly across sectors. There is causal
relationship between FDI and output in the manufacturing sector, whereas in the
primary sector, there exists no causal relationship.
Adi and Adimani (2014) explored the causal effect of FDI on economic growth
of China by using time series data over the period from 1995 to 2010. The results indicated that FDI in primary
industry do not cause economic growth; FDI inflows in secondary industry cause
economic growth and vise versa; while economic growth cause FDI inflow in tertiary
industry of China.
Durnel (2012) investigated the
impact of FDI on economic growth across different sectors in Turkey by using a
panel for 10 sectors (based on International Standard Industrial Classification
Rev.2) between 2000 and 2009. Using panel cointegration test and
Granger-Causality test, his results concluded that there is long-run cointegrating
relationship between FDI and GDP; the results also depicted unidirectional causality
from FDI to GDP which means that first FDI has planted in first period, and
then, GDP has exhibited an improved growth rate in second period. At the
sectoral level, FDI facilitates growth rate most in the manufacturing, power, gas
and water, electricity, wholesale and retail trade sectors.
FDI and Export Performance
The theory of multinational enterprise (MNE) investigates
the situations under which firms may go for foreign direct investment
(Markusen, 2002). The theory states that when the host country enjoys lower
trade cost compared to that of the home country, MNE may use the host country
as an export platform for serving its’ home market and other markets. MNE may
outsource some parts of its’ production process to the host country and export
these products back to the home country as well as other countries.
Akamatsu (1961) had developed ‘Flying Geese Model’
which shows a complementary relationship between FDI and trade. The model
indicates that the MNEs move its location of production from high labor cost home
country to low labor cost host country with a view to lessening the production
cost. Besides, along with FDI, MNEs also brings superior technology, capital
equipments, and managerial expertise into the host countries and develops the
productive capacity and competitiveness of the native firms, thus, increase in the
export capacity of the host countries.
Kojima (1973, 1985) stated that FDI has been made in
the sector in which the home country has comparative disadvantage and the host
country has comparative advantage, which in turn may contribute to the host
Numerous country-specific studies have demonstrated
either positive relationship or negative relationship or an insignificant
relationship between FDI and exports. Prasanna
(2010) examined the impact of FDI inflows on the export performance of
India between 1991-92 and 2006-07. The results concluded that inward FDI has
significantly contributed to the export performance of India during the study
In their study, Aitken et al. (1997) showed that the presence of Korean garment company in
Bangladesh led to the establishment of a number of domestic export firms,
creating the country’s largest export industry.
Gorokhov (2011) investigated the relationship between
FDI and exports performance of China using panel data of 29 provinces in the
period of 1986-2009. The results showed that inward FDI has negative impact on
the export performance of China during the sample period of 1986-2009; but
inward FDI has positive effects on Chinese export performance during the period
of 2001-2009 (after the WTO accession).
Yousaf et al.
(2008) investigated the impact of FDI on the imports and exports of Pakistan
through annual data for the period of 1973-2004. Their results confirmed that
FDI and real demand for import are positively related both in the short-run and
in the long-run; whereas FDI is negatively
related with real exports in the short-run and but positively related in the
Sultan (2013) examined the relationship between FDI and
export of India using annual data over the period between 1980 and 2010. The Johansen
cointegration method indicated stable long-run equilibrium relationship between
FDI and export growth. The Vector Error Correction Model (VECM) confirmed that
causality runs from export to FDI but not vice versa.
Samsu et al.
(2008) investigated the relationship between FDI inflows and exports of Malaysia
by using the annual data between 1970 and 2003. The authors indicated a long-run
relationship between FDI and export growth of Malaysia and there exists
unidirectional causality running from FDI to export (FDI-led export) of Malaysia.
Rahmaddi and Ichihashi (2012) examined the existence
of a relationship between FDI and exports in the manufacturing sectors of Indonesia
by using disaggregated data of manufacturing sectors between 1990 and 2008.Their
result concluded that FDI facilitates export performance of Indonesia in both
labor-intensive/low technology and technologically complex, higher value added
Haq (2013) examined the impact of FDI on exports of
Pakistan using data for the period of 1980 to 2012. The cointegration test and
Granger-causality test results indicate that FDI and exports are cointegrated
and there is the existence of bi-directional causality between FDI and export
of Pakistan at the aggregate level.
Kuntluru et al.
(2012) examined the effect of FDI on export performance of pharmaceutical firms
in India by using the data of 103 pharmaceutical firms between 1998 and 2005.
Their findings indicated that foreign ownership has a negative impact on export
performance of pharmaceutical firms in India and foreign owned firms focus more
on host country specific advantages such as opportunities for R&D,
innovation and lower cost of manufacturing than on export markets.
Pacheco–Lopez (2005) demonstrated the causal
relationship between inward FDI and export performance of Mexico by using the
Granger causality test. The authors found the presence of bi-directional
causality between inward FDI and export performance of Mexico. They concluded
that FDI inflows encourage exports and the performance of exports stimulates more
FDI inflows to the country.