Title_ Export Product Diversification, Trade Openness and Foreign Direct Investment Inflows: An Empirical Analysis

Author_ Sena Kimm Gnangnon

Pages 114-134

Abstract_ This article aims to contribute to the literature on the relationship between international trade and foreign direct investment (FDI) inflows by investigating whether export product diversification in host-countries influences FDI inflows to these countries, including when the latter further open-up to international trade. The analysis has been conducted on an unbalanced panel dataset comprising 143 countries over the period 1970-2010. Results, based on the two-step system Generalized Methods of Moments (GMM) approach, suggest that export product diversification exerts a positive and significant effect on FDI inflows, with this positive effect increasing as countries enjoy a higher real per capita income. This positive effect is particularly enhanced when the economic growth rate is positive in the host- country, as well as when the latter experiences greater trade openness.

Keywords_ Export product diversification, Foreign direct investment, Trade openness