Abstract
This aim of this work is to study the relationship between foreign direct investment (FDI) and trade. FDI is a driving force for economic growth for host countries. The positive effects of FDI are seen in many aspects of the economy. However, the implications of FDI on foreign trade are questionable. Therefore, this study uses a Granger causality technique to test whether the relationship between FDI and foreign trade is complementary or substitutive. The findings of this study indicate that this relationship appears to be complementary, and FDI investment does cause an increase in trade flow in the countries that are taken into consideration. This research aims to make a comparison between the relations of FDI flows of three groups of countries from the European Union (EU)—Romania and Bulgaria, the Visegrád Group and the Euro area—for the period of 2005 to 2019. However, the results indicate that this link between the variables is not yet found for the three group of countries, and further research is required in this aspect. This leads to the conclusion that the FDI impact on foreign trade of the host country depends on the type of investment and absorptive capacity of the receiver, the economic development of host and home countries, and not every type of FDI leads to more trade.
Highlights
The foreign direct investment is the driving force of structural transformation for host countries (Zaman and Vasile 2012; Beatrice 2013; Kottaridi and Filippaios 2015; Islam et al 2018; Asada 2020; Ioan et al 2020; Djokoto 2021)
foreign direct investment (FDI) impact on foreign trade of the host country depends on the type of investment and absorptive capacity of the receiver, the economic development of host and home countries, and not every type of FDI leads to more trade
The implications of FDI on the foreign trade of the host country must consider such activities carried out by foreign subsidiaries, which must comply with the conditions imposed by the parent company on sources of supply and markets
Summary
The foreign direct investment is the driving force of structural transformation for host countries (Zaman and Vasile 2012; Beatrice 2013; Kottaridi and Filippaios 2015; Islam et al 2018; Asada 2020; Ioan et al 2020; Djokoto 2021). The beneficial effects of foreign capital are felt on several levels, but differently depending on the characteristics and potential of the host country (Iacovoiu and Panait 2014; Voica and Mirela 2014; Ullah et al 2015; Erkomaishvili et al 2018; Islam et al 2020; Gupta et al 2021; Kyove et al.2021). Accessing external markets is done in different ways, the most used method being the export of goods and foreign direct investment (FDI), which involve the establishment or acquisition of local companies so that products and services are made locally and are no longer subject to any tariff or non-tariff barriers created to protect national economies from foreign competition. Especially in the case of consumer goods
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