FOREIGN DIRECT INVESTMENT AND INTRA-INDUSTRY TRADE IN TURKEY AND SELECTED EU COUNTRIES: DUMITRESCU-HURLIN PANEL CAUSALITY ANALYSIS

Abstract

Intra-industry trade between developing and developed countries has been increasing in connection with the integration of the global economy and the outsourcing activities of multinational companies in the last fifty years. The expansion of intra-firm trade associated with increasing foreign direct investment on a global scale is considered as one of the main factors driving the growth of intra-industry trade between the source of investment and the host country. The aim of this study is to empirically test the relationship between foreign direct investment and intra-industry trade. In the research, Grubel-Lloyd index calculation was made by using the data of selected EU countries (Czech Republic, Croatia, Hungary, Austria, Bulgaria, Poland, Romania, Slovakia, Slovenia) and Turkey for the period 1996-2019. The index of intra-industry trade and foreign direct investment net inflows and net outflows are analyzed by Westerlund cointegration and Dumitrescu-Hurlin panel causality analysis as two models. According to the results of the analysis, there is a one-way causality from net inflows of foreign direct investment (FDI) to intra-industry trade, while there is a two-way causality relationship between net outflow of foreign direct investment (FDIO) and intra-industry trade.