Measurement and Analysis of the Impact of Foreign Direct Investment and Governance on International Trade in a Group of Asian Countries (2000-2022)

Abstract

        This study aims to measure the impact of foreign direct investment (FDI) and governance on trade openness in a group of Asian countries during the period (2000-2022). The research addresses the central problem of whether FDI complements or substitutes international trade, and what the relationship is between governance indicators and international trade. The study tests the hypothesis that FDI has a positive effect on international trade, and that governance indicators positively influence international trade. To examine the effect of the research variables on international trade, the study uses trade openness as a proxy for international trade (which is represented by exports and imports as a percentage of GDP). The research employs a quantitative approach, using the Autoregressive Distributed Lag Model (ARDL) and the Pooled Mean Group (PMG) method to estimate the model parameters. The results indicate that the explanatory variables significantly affect trade openness. Specifically, there is a positive and statistically significant effect of GDP, FDI, and government effectiveness on trade openness in the countries under study. Additionally, there is a statistically significant negative effect of regulatory quality, and an insignificant negative effect of exchange rates on trade openness in the sample of Asian countries. The study concludes with several recommendations, including the need for countries seeking to increase their international trade to focus on government effectiveness and regulatory quality indicators, as they play a crucial role in shaping the volume of international trade. These factors help reduce transaction costs and ensure property rights in economic exchanges.