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Trade Openness Study

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2.3 TRADE OPENNESS

FDI, GDP AND OPENNESS OF ECONOMY Based on the study by Kandiero and Chitiga, (2006), the FDI and GDP respond well to the increase of openness in the economy especially in the service sectors. The reduction of tariff barrier will surely help to promote FDI to the countries. Greater openness is one way for the African to catch up with other region in developing FDI. In a more micro view in the case of African countries, the service sector opening influences the FDI to GDP ratio more than in agriculture and manufacturing sector. They use the export and import sum of GDP to represent the openness as they believed that a more open economy are represented by the volume traded and will attract more FDI. INTERCORRELATION BETWEEN …show more content…

The importance of FDI and trade openness was the notorious features trend toward globalization in recent years and has emerged as one of the talking points by the economist when explaining the growth of developing countries. As this two component is assumed to have a parallel relation, the positive trade openness contributes to nation growth by improving productivity and export capability. Trade openness also provides a greater efficiency, It is found that the countries with more openness relatively outperformed their economy than less opened countries because they indirectly promoting the FDI to their countries thus enjoying the benefits of …show more content…

The more economic freedom effect greater FDI, ceteris peribus (Heriot, Theis and Campbell, 2008). In their study, they used Fraser Institute’s Index of Economic Freedom (FI) for their study. It consist of several economic freedom indexes such as legal system, government regulations and freedom to trade internationally. This Index includes both numerical measures and perception indicators to support the link between FI and average FDI from 2000 to 2005 and the additional statistical relation between the foreign trade component of FI and FDI. They took a sample from 121 countries and shows a significant relationship. It is also indicates that Fraser FI signs some factor in predicting the change in FDI. Most of the FDI will goes to countries with large

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