Openness and Growth: Re-Examining Foreign Direct Investment, Trade and Output Linkages in Latin America

Abstract

The relationship between openness and economic growth in developing countries has been fully analysed by a large number of empirical papers. Primary attention has been given to the advantages of an outward-oriented strategy and to the role of exports in economic performance. Nevertheless, the evidence about the export-led growth (ELG) hypothesis is rather mixed. In particular, recent time series studies fail to provide uniform support for this hypothesis. Taking into account that openness is increasing not only trade but also foreign direct investment flows, in this paper we have employed a vector autoregressive (VAR) model to test the existence and nature of the causal relationship between output level, inward FDI and trade in Argentina, Brazil and Mexico from the middle seventies to 1997. Our principal aim is to analyse the extent and sources of international linkages between openness and economic performance in these developing countries. Although we have not found evidence about the ELG hypothesis, our results suggest a significant impact of FDI on economic growth and trade in the analysed countries. Outline

Cite this paper

@inproceedings{TeresaOpennessAG, title={Openness and Growth: Re-Examining Foreign Direct Investment, Trade and Output Linkages in Latin America}, author={Maria Luisa de Teresa} }