Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: The paper investigates the flows of FDI and trade in eight high performing East Asian economies with a focus on the relationship between FDI and host country exports. The development and importance of FDI and trade for the region is described. The empirical part of the paper examines the relationship between FDI and host country exports, using data for the period 1980 to 2003. Time series regressions for individual economies as well as panel data estimation indicate that FDI inflows have a significant and positive effect on host country exports, suggesting that export-platform FDI may be important for the East Asian economies. No clear link between outflows of FDI and exports was found, allowing FDI outflows to function as both a complement and a substitute for source country exports. Granger causality tests find indications of FDI inflows causing exports, providing further evidence that the export-platform FDI strategy applies for the East Asian economies.

Keywords: foreign direct investment; East Asia; international trade; exports

JEL-codes: F14; F21; F23

41 pages, March 29, 2006

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