THE IMPACT OF TRADE OPENNESS AND FINANCIAL DEVELOPMENT ON FOREIGN DIRECT INVESTMENT: A DYNAMIC PANEL DATA ANALYSIS ON OECD COUNTRIES

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The purpose of this paper is to empirically investigate the impact of trade openness and financial development on foreign direct investment in OECD countries over the period 1996-2011. By using the system-GMM estimator suggested for linear dynamic panel data models, we find that trade openness and financial development are positively associated with foreign direct investment in the long-run. By using Granger causality test based on panel VAR model, we also determine the causal relationship running from these variables to foreign direct investment over the period. Thus, the empirical results imply that trade openness and financial development are the determinants of foreign direct investment in OECD countries. This paper may also provide some policy implications.

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Trade Openness , Financial Development , Foreign Direct Investment , Dynamic Panel Data , Causality

Journal Of Economics and Administrative Sciences, Ataturk University

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Journal Of Economics and Administrative Sciences, Ataturk University