Host market characteristics, FDI and the FDI - Trade relationship

This paper empirically examines how a host nation's market characteristics, particularly its market maturity and role as an export platform, affect the amount of inward FDI it receives and its FDI-bilateral trade relationship with the FDI source. For the period 1989-1999, using Japanese outward FDI into 85 geographically and developmentally diverse countries, we find a positive and significant relationship between FDI inflows and the host's market maturity levels. However, the FDI-trade interaction between the host and the FDI source appears to vary inversely with the host country's market maturity level. In addition, after controlling for the host's market maturity, we find that the nature of the host's 'export platform' status also significantly impacts both inward FDI flows and the FDI-trade relationship.