How does OFDI affect trade development in developing countries?
| Date | 17 June 2013 |
| DOI | https://doi.org/10.1108/JCEFTS-05-2013-0020 |
| Published date | 17 June 2013 |
| Pages | 85-90 |
| Author | Yongchang Qiang |
| Subject Matter | Economics,International economics |
How does OFDI affect trade
development in developing
countries?
Yongchang Qiang
World Economy Department, The School of Economics, Fudan University,
Shanghai, People’s Republic of China
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.
Keywords OFDI, Trade development, Developingcountries, Trade, Direct investment
Paper type Research paper
1. Introduction
In a general sense, trade and investment belong to different fields, and have their own
theoretical systems. However, with production internationalization, FDI has played an
important role in trade development. If we deeply study the interactions between FDI
and trade, the traditional perspective that the investment can only lead to changes of
capital endowment in a country is not perfect. Because direct investment is quite
different from indirect, it is not only the international flow of monetary capital, but
such activities usually accompany the flow of factors such as technology, management,
and marketing knowledge, etc. On the other hand, these theories were mainly created
and founded in the developed countries and subsequently aimed only to explain the
direct investment behavior of them. If we shift our perspective to developing countries,
then we would discover that the effect of FDI is not only changing the supply-demand
relationship of monetary capital. It also has significant influences on division of labor
and trade in developing countries through the change in knowledge-oriented factors.
Therefore, incorporating international direct investment as a new variable into
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1754-4408.htm
This paper is the main views of the periodical results of the third round “985 project”, Fudan
University (No. 2011SHKXZD002). Hereby, many thanks for the kind support of the fund.
Journal of Chinese Economic and
Foreign Trade Studies
Vol. 6 No. 2, 2013
pp. 85-90
qEmerald Group Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-05-2013-0020
OFDI in
developing
countries
85
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