Previous literatures have come to a mixed result on how FDI flows affect both export and import. A possibility of endogeneity problem might arise that made this relationship is quite difficult to conclude, let alone using aggregate data may arise aggregate bias. Using US FDI outflow 2-digit ISIC Revision.3 as industry code and 6-digit trade data obtained from UNCOMTRADE, this thesis tries to reveal relationship between US FDI outflow and trade across seven sub sectors in manufacturing industry in the US. It is found that, indeed, the relationship of US FDI outflow and trade vary across these sub-sectors. It is reported that there are three sub-sectors that US FDI outflow complements both export and import, there two sub sectors that US FDI outflow affects differently to each export and imports. Lastly, there are two sub sectors that US FDI outflow affects negatively on both export and import, making the relationship is substitute. Further, this thesis also tries to find linkage of exchange rate on trade and FDI in different sub sectors, since exchange rate is a mutual determinant factor in these two indicators. It is found that almost in all sub sectors, exchange rate gives both direct effect and indirect effect (through FDI) on trade. Moreover, the effect of exchange rate on FDI outflow confirms our proposed hypothesis only in Metal and Machinery manufacturing that appreciation in US dollar leading the US investors to increase direct investment abroad since US dollar dominates other currency, however, only Machinery manufacturing is found statistically significant.

Viaene, J.M.A.
hdl.handle.net/2105/39541
Business Economics
Erasmus School of Economics

Satriatama, D. (2017, October 4). Exchange Rate, FDI Outflow and Trade Linkage: Evidence of Seven US’ Sub-Sectors in Manufacturing Industry. Business Economics. Retrieved from http://hdl.handle.net/2105/39541