The Relationship Between Foreign Direct Investments and Exports: A Causality Analysis on Developing Countries

This paper aims to examine the causal relationships between foreign direct investments (FDI) and exports in eight developing countries by using augmented Granger causality tests over the period 1980-2009. The empirical results of Toda-Yamamoto test indicate that there is a causal relationship between variables running from FDI to exports for Poland and Mexico, while the direction of causality is from exports to FDI for Pakistan and Turkey. Dolado-Lutkepohl test's findings exhibit that there is a uni-directional causality running from FDI to exports for Poland, while the direction of causality is from exports to FDI for Pakistan and Tayland. Here, there is no bi-directional causality between variables in both tests. Consequently, developing countries should sustain to generate and implement the policies based on exports and FDI. The outward-looking development strategies of developing countries should encompass both export-support strategy and FDI-support strategy.