Trade productivity upgrading, trade fragmentation, and FDI in manufacturing

Purpose – This paper aims to examine the experience of ten Asian countries with respect to growth, trade and FDI. It seeks to explore relationships between the nature of exports and imports and growth, as well as the relevance of FDI as a channel for these relationships. Design/methodology/approach – The paper opted for an empirical approach. It included collecting standardize data on international trade, GDP per capita, and FDI inflows. The trade data and GDP data were used in creating the productivity level for exports and imports for all of the relevant countries. The paper analyses how these productivity levels compare to GDP per capita, change over time, and relate to FDI inflows. Findings – The authors find that FDI is positively correlated with higher productivity levels in exports and imports for many of the countries in their sample. The effect for imports is particularly apparent for imported intermediate goods, reflecting the emergence of greater trade fragmentation. In turn, both imported intermediates and exports that are associated with higher productivity levels are positively correlated with per capita GDP. Research limitations/implications – There are a couple of research limitations. First, the work does not determine causality; future econometric work should help to identify the causality mechanism. Second, trade fragmentation might lead to an overestimation of “productivity” levels; future work should try to identify the extent of the bias and a way to fix the issue. Practical implications – This work may have implications for how policymakers view trade and FDI policies, and the possible links between them, in the context of promoting growth. Social implications – This work may have implications for understanding the links between growth and structural change in the economy, which is in turn linked to societal change. Originality/value – This paper brings together empirical evidence that integrates discussions of FDI, trade fragmentation and improvements in the productivity of traded goods.