The relationship between foreign direct investment and trade openness: Evidence from six developed economies

Abstract

Abstract Subject and purpose of work In recent years, the competition for economic dominance globally has led developed economies increasingly to focus on outward foreign direct investment (FDI) and exports to other developing nations. However, there has been a notable research gap, with most studies concentrating on assessing the significance of FDI and trade openness in developing countries, while less attention has been paid to developed countries. This study explores the relationship between FDI and trade openness with economic growth in six developed economies. Material and methods Utilising annual data spanning from 1990 to 2022 from the World Bank, the study employs the panel Autoregressive Distributed Lag (ARDL) method for analysis. Results The estimated results indicate a negative long-run relationship and a positive short-run effect of FDI in the selected economies. Furthermore, the findings reveal a positive long-run association and a negative short-run impact of trade openness. The causality test indicated a bidirectional relationship between trade openness and economic growth. Conclusions The study suggests that various governments should enhance their investment environments to leverage the benefits of FDI inflows.