Abstract
In this paper we estimate the demand for exports and imports of manufactured goods for a panel containing the majority of the EU countries as well as the United States and Japan. The model includes as explanatory factors both the traditional determinants of trade and also the stock of foreign direct investment (FDI). We apply panel unit root and cointegration tests allowing for heterogeneity. Whereas there is no evidence of cointegration when using just the traditional formulation, the results are favorable to the existence of long-run relationships linking the variables of the augmented model. Moreover, the results point mainly to a complementary relationship between trade and FDI.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
Bajo, O., and C. López-Pueyo (2002). Foreign Direct Investment in a Process of Economic Integration: The Case of Spanish Manufacturing, 1986–1992.Journal of Economic Integration 17(1): 85–103.
Bajo, O., and M. Montero (1995). Un modelo econométrico ampliado para el comercio exterior español, 1977–1992.Moneda y Crédito 201: 153–182.
Bajo, O., and M. Montero (2001). Foreign Direct Investment and Trade: A Causality Analysis.Open Economies Review 12 (3): 305–323.
Baldwin, R. E., and G. I. P. Ottaviano (2001). Multiproduct Multinationals and Reciprocal FDI Dumping.Journal of International Economics 54 (2): 429–448.
Barrell, R., and N. Pain (1997). Foreign Direct Investment, Technological Change and Economic Growth within Europe.Economic Journal 107 (November): 102–126.
Barry, F., J. Bradley, A. Hannan, J. McCartan, and S. Sosvilla-Rivero (1997).Single Market Review 1996: Aggregate and Regional Impact: The Cases of Greece, Ireland, Portugal and Spain. London: Kogan Page, Luxembourg: Office for Official Publications of the European Communities.
Blomström M., and A. Kokko (1997). Regional Integration and Foreign Direct Investment. A Conceptual Framework and Three Cases. Policy Research Working Paper 1750. International Economics Department, World Bank, Washington, D.C.
Blonigen, B. A. (2001). In Search of Substitution between Foreign Production and Exports.Journal of International Economics 53(1): 81–104.
Blonigen, B. A., R. B. Davies, and K. Head (2003). Estimating the Knowledge-Capital Model of the Multinational Enterprise: Comment.American Economic Review 93 (3): 980–994.
Brainard, S. L. (1997). An Empirical Assessment of the Proximity-Concentration Trade-Off between Multinational Sales and Trade.American Economic Review 87 (4): 521–544.
Brenton, P., F. Di Mauro, and M. Lücke (1999). Economic Integration and FDI: An Empirical Analysis of Foreign Investment in the EU and in Central and Eastern Europe.Empirica 26 (2): 95–121.
Carr, D. L., J. R. Markusen, and K. E. Maskus (2001). Estimating the Knowledge-Capital Model of the Multinational Enterprise.American Economic Review 91 (3): 693–708.
Chiang, M. H., and C. Kao (2002). Nonstationary Panel Time Series Using NPT 1.3. A User Guide. Mimeo, University of Syracuse.
Deutsche Bundesbank (1997a). Problems of International Comparisons of Direct Investment Flows.Monthly Report 49 (5): 77–83.
Deutsche Bundesbank (1997b). Developments and Determinants of International Direct Investment.Monthly Report 49 (8): 63–82.
Driver, R., and S. Wren-Lewis (1999). New Trade Theory and Aggregate Export Equations: An Application of Panel Cointegration. Discussion Papers in Economics 99/17. University of Exeter.
Dunning, J. H. (1972). The Location of International Firms in an Enlarged EEC: An Exploratory Paper. Manchester Statistical Society, Manchester.
Dunning, J. H. (1979). Explaining Changing Patterns of International Production: In Defence of an Eclectic Theory.Oxford Bulletin of Economics and Statistics 41 (4): 269–295.
Eaton, J., and A. Tamura (1996). Japanese and US Exports and Investments as Conduits of Growth. NBER Working Paper 5457. National Bureau of Economic Research, Cambridge, Mass.
Egger, P. (2001). European Exports and Outward Foreign Direct Investment: A Dynamic Panel Data Approach.Review of World Economics/Weltwirtschaftliches Archiv 137 (3): 427–449.
Egger, P. (2002). An Econometric View on the Estimation of Gravity Models and the Calculation of Trade Potentials.World Economy 25 (2): 297–312.
Goldstein, M., and M. S. Khan (1985). Income and Price Effects in Foreign Trade. In R. W. Jones and P. B. Kenen (eds.),Handbook of International Economics. Vol. 2. Amsterdam: North-Holland.
Hadri, K. (2000). Testing for Stationarity in Heterogeneous Panel Data.Econometrics Journal 3 (2): 148–161.
Harris, D., and B. Inder (1994). A Test of the Null Hypothesis of Cointegration. In C. P. Hargreaves (ed.),Nonstationary Time Series Analysis and Cointegration. Oxford: Oxford University Press.
Helpman, E. (1984). A Simple Theory of Trade with Multinational Corporations.Journal of Political Economy 92 (3): 451–471.
Helpman, E., and P. Krugman (1985).Market Structure and Foreign Trade. Cambridge, Mass.: MIT Press.
Helpman, E., M. J. Melitz, and S. R. Yeaple (2003). Exports versus FDI. NBER Working Paper 9439. National Bureau of Economic Research, Cambridge, Mass.
Hooper, P., and J. Márquez (1995). Exchange Rates, Prices, and External Adjustment in the United States and Japan. In P. Kenen (ed.),Understanding Interdependence: The Macroeconomics of the Open Economy. Princeton, N.J.: Princeton University Press.
Hooper, P., K. Johnson, and J. Márquez (1998). Trade Elasticities for G-7 Countries. International Finance Discussion Paper 609. Board of Governors of the Federal Reserve System.
Im, K., M. H. Pesaran, and Y. Shin (1995). Testing for Unit Roots in Heterogeneous Panels. Department of Applied Economics, University of Cambridge.
Kao, C. (1999). Spurious Regression and Residual-Based Tests for Cointegration in Panel Data.Journal of Econometrics 90 (1): 1–44.
Kao, C., and M. H. Chiang (2000). On the Estimation and Inference of a Cointegrated Regression in Panel Data. In B. H. Baltagi (ed.),Nonstationary Panels, Panel Cointegration, and Dynamic Panels Vol. 15. Amsterdam: JAI.
Kwiatkowski, D., P. C. B. Phillips, P. Schmidt, and Y. Shin (1992). Testing the Null Hypothesis of Stationarity against the Alternative of a Unit Root: How Sure Are We that Economic Time Series Have a Unit Root?Journal of Econometrics 54 (1–3): 159–178.
Levin, A., and C. F. Lin (1992). Unit Root Tests in Panel Data: Asymptotic and Finite Sample Properties. Discussion Paper 92-93. University of California, San Diego.
Levin, A., and C. F. Lin (1993). Unit Root Tests in Panel Data: New Results. Discussion Paper 93-56. University of California, San Diego.
Levin, A., C. F. Lin, and C. Chu (2002). Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties.Journal of Econometrics 108 (1): 1–24.
Lin, A. (1995). Trade Effects of Foreign Direct Investment: Evidence for Taiwan with Four ASEAN Countries.Review of World Economics/Weltwirtschaftliches Archiv 131 (4): 737–747.
Markusen, J. R. (1983). Factor Movements and Commodity Trade as Complements.Journal of International Economics 14 (3/4): 341–356.
Markusen, J. R. (1984). Multinationals, Multi-Plant Economies, and the Gains from Trade.Journal of International Economics 16 (3/4): 205–226.
Markusen, J. R. (1997). Trade versus Investment Liberalization. NBER Working Paper 6231. National Bureau of Economic Research, Cambridge, Mass.
Markusen, J. R. (2002).Multinational Firms and the Theory of International Trade. Cambridge, Mass.: MIT Press.
Markusen, J. R., and K. E. Maskus (2001). A Unified Approach to Intra-Industry Trade and Direct Foreign Investment. NBER Working Paper 8335. National Bureau of Economic Research, Cambridge, Mass.
Markusen, J. R., and K. E. Maskus (2002). Discriminating among Alternative Theories of the Multinational Enterprise.Review of International Economics 10 (4): 694–707.
Markusen, J. R., D. E. Konan, A. J. Venables, and K. H. Zhang (1996). A Unified Treatment of Horizontal Direct Investment, Vertical Direct Investment, and the Pattern of Trade in Goods and Services. NBER Working Paper 5696. National Bureau of Economic Research, Cambridge, Mass.
Martin, S. (1993).Advanced Industrial Economics. Oxford: Blackwell.
Martínez-Serrano, J. A., and R. Myro (1992). La penetración del capital extranjero en la industria española.Moneda y Crédito 194: 149–191.
McCoskey, S., and C. Kao (1998). A Monte Carlo Comparison of Tests for Cointegration in Panel Data. Mimeo, Syracuse University.
Mundell, R. A. (1957). International Trade and Factor Mobility.American Economic Review 47 (3): 321–335.
Neary, P. (2002). Foreign Direct Investment and the Single Market. CEPR Discussion Paper Series 3419. Centre for Economic Policy Research, London.
Pain, N., and K. Wakelin (1998). Export Performance and the Role of Foreign Direct Investment.The Manchester School Supplement 66: 62–88.
Phillips, P. C. B., and B. E. Hansen (1990). Statistical Inference in Instrumental Variables Regression with I(1) Processes.Review of Economic Studies 57 (1): 99–125.
Saikonnen, P. (1991). Asymptotically Efficient Estimation of Cointegration Regressions.Econometric Theory 7(1): 1–21.
Smith, A. (1987). Strategic Investment, Multinational Corporations and Trade Policy.European Economic Review 31 (1): 89–96.
Stock, J., and M. Watson (1993). A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems.Econometrica 61 (4): 783–820.
Author information
Authors and Affiliations
Corresponding author
About this article
Cite this article
Mariam, C., Cecilio, T. Estimating the export and import demand for manufactured goods: The role of FDI. Rev World Econ 140, 347–375 (2004). https://doi.org/10.1007/BF02665980
Issue Date:
DOI: https://doi.org/10.1007/BF02665980