Master of Economics(Research)
Economics and Information Systems - Faculty of Commerce
Lee, Shao-Wei, Foreign direct investment and export performance: the case of Taiwan,M.Econ-Res. thesis, Economics and Information Systems, University of Wollongong, 2007. http://ro.uow.edu.au/theses/669
A theoretical linkage between FDI and the host country's export can be explained by using the flying geese model, Vernon's PLC theory and new growth theory. Three theories have different explanations of FDI flows; however, they all argue that FDI has an influence on the export performance of the host country. There are two positive influences of FDI on the host country's export performance. Firstly, MNCs subsidiaries exploit the host country's factor endowments for lower manufacturing cost to increase their exporting competitiveness. Therefore, the host country's export expansion by MNCs subsidiaries is expected. Secondly, the host country's exports can be increased by local firms through the spillover effect of FDI such as competition and transfer of knowledge. Significantly, there was an overall agreement that inward FDI had a positive effect on the host country's export performance. However, it is found that the results on this issue were inconclusive and require more evidence. The Taiwanese case was more relevant to this topic because Taiwan consistently encourages FDI, especially since the establishment of export processing zones for the purpose of export-oriented FDI from 1966. The objective of this thesis was to investigate the impacts of inward FDI on Taiwanese export performance from 1952 to 2005. The major hypothesis was that inward FDI has had a positive impact on Taiwanese export performance. To test this hypothesis, the sub-hypotheses were formed to arrive at a conclusion on the objective. The most recent unit root test in the presence of multiple structural breaks was examined by using the LP approach and the Granger causality model was adopted to enable research in a time series framework. Overall, support for the major hypothesis that inward FDI has had a positive effect on Taiwanese export performance has been obtained. Moreover, structural breaks in univariate time series coincide with not only the Taiwanese government's intervention on FDI policy and trade reforms but also the changes of the international political events and economic circumstances.
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