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WP/06 The Impact of Foreign Direct Investment on Developing Countries’ Terms of Trade

This paper first shows that important economic arguments in favor of the Prebisch-Singer hypothesis of falling terms of trade of developing countries have implicitly relied on the role of multinational corporations and foreign direct investment. As of yet, the relationship between the latter and terms of trade has not been empirically investigated. In order to start closing this gap in research, data on 111 developing countries between 1980 and 2008 is analyzed using panel data methods. The empirical results suggest that there is no reason to believe multinationals’ activities were responsible for a possible decrease of the developing countries’ net barter terms of trade. On the contrary, foreign direct investment seems to play a positive role for developing countries’ terms of trade. The paper also investigates other possible variables structurally influencing terms of trade and thus provides fruitful directions for future research.
Publisher:
UNU-WIDER
Series:
WIDER Working Paper
Volume:
2011/06
Title:
WP/06 The Impact of Foreign Direct Investment on Developing Countries’ Terms of Trade
Authors:
Konstantin M. Wacker
Publication date:
January 2011
ISBN 13 Web:
978-92-9230-369-3
Copyright holder:
© UNU-WIDER
Copyright year:
2011
Keywords:
terms of trade, FDI, multinationals, Prebisch Singer hypothesis
JEL:
C23, F23, O11
Project:
New Directions in Development Economics (2010)
Sponsor:
UNU-WIDER gratefully acknowledges the financial contributions to the research programme by the governments of Denmark (Royal Ministry of Foreign Affairs), Finland (Ministry for Foreign Affairs), Sweden (Swedish International Development Cooperation Agency—Sida) and the United Kingdom (Department for International Development—DFID).
Format:
online
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