The impact of trade openness on FDI inflows in Asian emerging economies

In many countries, foreign direct investment is becoming one of the most significant components of economic development. The Asian emerging market is regarded as one of the best places to invest. Many governments have taken steps to deal with international trade to attract more foreign direct investment and open up their economies by implementing several progressive policies and creating a free trade zone. The main objective is to examine the impact of trade openness on foreign direct investment inflows in Asian emerging economies by employing the Panel-Pooled Mean Group Autoregressive Distributed Lag (PMGARDL) model and examining the direction of the causality between trade openness and FDI inflows using the Granger causality test period from 1996 to 2019. To examine the impact of trade openness on FDI inflows, we employed potential determinants of FDI such as GDP, population size, inflation, mobile telephone subscriptions, gross fixed capital formation, and total reserve as control variables in the model. As a result, trade openness has a positive and statistically significant impact on FDI inflows in the long run, but there is no significant relationship between trade openness and FDI inflows in the short run. The Granger causality test indicated that Asian emerging countries have a unidirectional causal relationship and that the causality runs from trade openness to foreign direct investment. In line with the findings, it is better to promote strong open trade policies to improve the investment climate in each country to attract more FDI into the region.