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ABSTRACT

In empirical results we assessed the impact of foreign direct
investment on export performance. This paper built on pooled ordinary least squares
(OLS), fixed effects model (FEM), and Random effects model (REM). Using panel data
in 113 countries for the period 1974–2015, we examined is their complementary
relationship between FDI and export.
Fixed effects model leads to conclusion that there is a significant
relationship between FDI and Export for these countries. This research contributed to a better
understanding of the relationship between FDI and exports. The model’s
estimated parameters are consistent with expectations and are highly statistically
significant. The results indicate that FDI promotes exports in 113 countries.

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INTRODUCTION

The impact of Foreign direct
investment on export by 113 countries in both developing and developed
countries have different perspectives according to the real scenario so this
paper mainly will focus on the determinant whether that it belongs to negative
or positive, and also the impact of
foreign direct investment on export performance of these countries in the world
have different categories in
terms of the percentage of the foreign direct investment on export besides
that  from the early literatures, policy
makers and researchers had a great in relationship between foreign direct
investment and export. Their main reason and motivation is that they want to
know if their countries should increase in export.

In fact, there is largely shared perspective that FDI encourages
exports of home countries by developing the local capital for exports,
supporting the transport in technology and new products for exports, alleviating
right to enter new and large foreign markets and supplying training skills of
the domestic labor and increasing technology and management skills.
Nevertheless, it has also been debated that FDI can lower or change domestic
saving and investment, transport technologies that are low level or unsuitable
for the home country’s factory dimensions, basically the home country’s
domestic market and therefore not expand export and domestic industries  according to (Moosa & Cardak, 2006).

In the earlier, FDI indicates as well as improving the horizontal
diversification of exports and also it assists the horizontal growth of
exports. (Tadesse & Shukralla, 2013) while other authors disagree the advantages of FDI for instance (Groothuis & Roesthuis, 2010) examined FDI in 10 new EU member countries (EU expansion from
2004). They discovered that FDI in the stated countries does not have a large
contribution to productivity development and export potential with respect of
their evidences.

 In theoretical, The component of FDI is expected to augment the production and
productivity, motivating and excited local development as well as spread out
technology investment (Alfaro, Chanda, Kalemli-Ozcan,
& Sayek, 2004).
But some authors for instance, (Helpman, 1984) argue that the impact of 
FDI on exporting has negative in terms of countries local production and
productivity.

The neo-classical trade theories of Richardo and Hechscher-Ohlin
have established the assumption of production factors internationally does not
allow the correlation between FDI and export, but, they both state capital
mobility as completeness for trade, while 
(Mundell, 1957)  in his assumption  rests on the immobility of production
factors. Thereby, (Markusen, 1983) also suggests many models such as external economies of scale and
dissimilarity in technologies as he advocates for trade other than relative
factor endowments. At every model factor mobility brings about the
dissimilarity in factor dimensions, making an added trust for export, however,
Schmitz and (Schmitz & Helmberger, 1970) changed the assumption of the Hechscher-Ohlin model by using a
special model, they moved from factors of 
immobility to a condition placed the capital is moved internationally
and also they found that export augmented in both products and factors because
of launching a complementary relationship of FDI and export. Therefore, economic
theory does not recognize the clear impact of FDI on export. As influential
work done by (Mundell, 1957) that shows analysis that  the correlation between FDI and exports that
remains upon the assumptions of the neoclassical Heckscher-Ohlin-Samuelson
theory.

Furthermore, analysis of theoretical that the determinant of
foreign direct investment in export performance of nine CIS countries by taking
annual aggregate level data overtime of 1995-2008, the results, clear negative
impacts of lagged FDI variables. Even though in order to gain trust outcome
three different methods that were employed, this is not clear that all factors
involving FDI on export relationship have been added into account in the study which
suggests that the model for improving. It is present that the impact can alter
in the future phase of development of the countries, FDI is expected to have
important positive overflow impacts over host countries economies which can
analyze in the future researches through not jointing them from impacts
consequence from extra capital providers in the export sector (Szabo, 2010).

On the other theoretical perspectives, there is a lot of analysis that
presented the impact of foreign direct investment on exports in four Middle
Eastern and North African (MENA) countries and the sensibility of exports to the
measure of FDI is analyzed using panel data duration 1975-2003, the results
presented that FDI has positively impacted the host country (Koch & Yelle, 2017).

Hence, the effects of foreign direct investment on the export
performance in terms of  international, national
and regional level for example the effects of FDI on the export regional area
in China that it has been identified the result of  impact is stronger in the coastal region than
in the inland regions, Even though FDI illustrate a positive and substantial
effect on exports from the central region (Sun & Parikh, 2001).

Empirically,  apart from (Clausing, 2000)  who analyzed the operations
of US multinational enterprises (MNEs) in 29 home countries the period from
1977to1994 and results a strong relationship that determined the FDI on
exports. Several studies have found significant impact of FDI and exports, however
(Pfaffermayr, 1996) and (Eaton & Tamura, 1994) get a strong positive correlation in their papers and also(Andersen & Hainaut, 1998) get a positive correlation in the USA, Japan, and Germany. The
empirical surveys on the firm level have mixed findings for instance (Lipsey & Weiss, 1981) display a complementary correlation between US exports and FDI for
40 countries in 1970. They got that a dollar of extra attached sales cause to
an addition from 2 to 78 cents of extra exports to the accompanying market.

The correlation between foreign direct investment and export
performance was forecasted by (Jongwanich, 2010) with the data of eight Asian countries time period 1993-2008. The
conducted analysis has presented that the FDI is positively correlated to the
export performance in these Asian countries. For instance, one of the world’s
most exporters, China has confirmed a significant increase in its foreign
direct investment (FDI). In addition, the consequence of FDI on export, (Zhang, 2005) pointed that FDI had positive and substantial effects on the
exports to China, he suggested that the China’s export expands was accompanied
by a significant foreign direct investment and China entered in 1978 the 32nd
largest exporting country in the world and in 2004 become the 3rd
largest exporting country in the world. In the empirical research there is a
lot of ideas those supporting the positivity of FDI on export  as view point of the (Gunawardana & Sharma, 2009) in their research and both authors analyze impact FDI in the
tendency of labor productivity and production by using Austrian manufacturing
sectors over the duration of 1988 to 2005. 
Their result seems to be positively correlated with all conditions.

On the opposite side, there is arguments related the negativity of
IDF on export. Therefore, the survey in the case of (Ramstetter, 1991) that he found a substantial negative correlation between foreign
direct investment and exports. He used USA firm level data for export
development between 1977 and 1982 that associated domestic content in their
product. According
to the above literature that there is a lot evidence that indicated foreign direct investment on the export performance has different perceptions in term
of positive and negative for example in the positive perspectives, (Andersen & Hainaut, 1998) get a positively correlation for the USA, Japan, and Germany and
also, the empirical surveys on the firm level have illustrated the correlation
between US exports and FDI for 40 countries in 1970. On the other hand in the
negative view such as(Helpman, 1984) argue that the impact of 
FDI on exporting has negative in terms of countries local production and
productivity.

Therefore, previous researchers
and authors have discussed the contribution of FDI on export and they found
that there is positively relationship between them while others go against
their perspective. However we are studying this for 113countries and we found
that there is significance and positive relationship between FDI and export
according to the empirical analysis of this research paper. So we believe the ability and the impact of
FDI to influence export activities would be vital stimulant in terms of export
performance and also it emphasized the positivity as well as contribution of
the FDI on export in particular. In the nutshell, FDI may directly and
indirectly enhance export growth and connectivity within and among countries.

 

 

 

Methodology

The empirical analysis of this survey contains a panel regression
method, precisely of the fixed model, random effects model and pooled ordinary
least squares (OLS) are applied exclusively the comparison design of empirical
findings.  For broad cope analysis of the
impact of FDI on export performance were executed a series of models by
increasing or omitting other determination variables in the baseline model,
This welcome to allow the researchers to determine for the most efficient and
reliable model on this case, also for the advised countries.

Panel data analysis is used to analyze the impact of FDI on export
performance, the study is based on a sample of cross-sectional data on 113
countries for the period 1974 to 2015 and their list has been mentioned in
appendex1.

Model specification

The following methods are used to
analyze the model, pooled ordinary least squares regression model, fixed
effects approach, Random effects and Hausman test.

For analyzing the impacts of FDI on export
performance for the sample 113 countries we use the following panel regression
model:

EXP= ?­0 + ?1FDI + ?2NFA+?3NODA+
? 4OER+ ?5INFL+ ?6POP + ?iZi + ?it……..(1)

Where EXP represents the exports
for country i at time t, FDI, NFA, NODA, OER, INFL and POP and the other
determinants of exports are a vector of control variables, whereas Zi is an
unobserved variable that changes from one country to the next but does not
alter over time (Stock
& Watson, 2003). We want to approximate, coefficients,
the impact of independent variables on dependent variable, holding constant the
unobserved country characteristics Z. Because Zi change from one
country to the next but is constant over time. ?it is the stochastic
term.

In order to analyze the
determinants of measure of export without taking into account country and time
effects, a pooled OLS regression model or multiple regression models, it would
be E = ? + ?0
+ ?1FDIi + ?2NODAi + ?3NFAi + ?4OERi
+ ?4INFL+ ?5POPi + …(2)

Where
E Is the
size of the export outcome in the country i in year t  is the
amount of foreign direct investment in the country i in year t ?
is intercept, ?1 is
slope parameters and is the error
term. (Hausman,
1978) provides a test for cultivated
between the fixed effects and the random effects estimators. The test is based
on comparing the difference between the two estimators of the coefficient
vectors, where the random effects estimator is efficient and consistent under
the null hypothesis and inconsistent under the alternative hypothesis. The
fixed effects estimator is consistent under both the null and the alternative
hypothesis. If the null is true, then the difference between the estimators
should be close to zero

EXP: export performance                                          

FDI: foreign direct investment

NODA: net official development assistance                 

NFA: net foreign assets

OER: official exchange rate 

INFL: inflation                                      

POP: population

Data description

To express the
relationship between FDI and export performance in the economy 113 countries
are being studied for the period 1974 to 2015. The research paper involves
using of an annual dataset of FDI and export of these countries. The data
availability of  the set of countries
limits the sample to start in 1974 and end in 2015, the data is provided mainly
from the database of the World Bank.

Descriptive
Statistics for the Data Variables

Table1 (appendix) presents the definitions,
descriptive statistics of the dependent and explanatory variables used in
empirical analyses for 113 countries. It presents the descriptive summary
statistics, approximately 57 percent of the countries sampled exports. With
regards to EXP 1.2 percent of output is exported for sales. The mean NFA is
shown as 7.22 percent. This means on average NODA represents approximately 9
percent of the sampled countries. The average country’s year is approximately
1994.5 years. The average level of OER is 277.85 percent respectively. The mean
of pop is approximately 7.29 percent.

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