How does OFDI affect trade development in developing countries?

Abstract

Purpose

This paper aims to focus on the trade effects of outward direct investment in developing countries.

Design/methodology/approach

To illustrate the effects, the author analyses it from the efficiency of resource utilization, technological advancement and transaction costs, respectively.

Findings

The author concludes that OFDI has a positive effect on trade development in developing countries.

Originality/value

Studying the interactions between FDI and trade, the traditional perspective that the investment can only lead to changes in capital endowment in a country is not perfect. These theories were mainly created and founded in developed countries and aimed only to explain their direct investment behavior. If the perspective is shifted to developing countries, it is found that the effect of FDI not only changes the supply-demand relationship of monetary capital, but also significantly influences division of labor and trade through the change in knowledge-oriented factors. Therefore, incorporating international direct investment as a new variable into contemporary international trade theories will enrich the existing theories, and also be beneficial for the development of integration theory of investment and trade.

Citation

Qiang, Y. (2013), "How does OFDI affect trade development in developing countries?", Journal of Chinese Economic and Foreign Trade Studies, Vol. 6 No. 2, pp. 85-90. https://doi.org/10.1108/JCEFTS-05-2013-0020