Trade openness and FDI in Zimbabwe: what does data tell us?

Abstract

The study focus on the causal relation between trade openness and foreign direct investment (FDI) in Zimbabwe. The choice for the country came about due to the consideration that such an area on trade openness and FDI has not been adequately covered in Zimbabwe. In the absence of consensus in the literature about the causal relation between trade openness and FDI, it has been found not to be easy to formulate effective FDI and international trade policies. Scores of researchers have failed to agree on the causality relationship between trade openness and FDI. Some have said trade openness boost FDI inflow while other researchers, though few are of the opinion that it is FDI that accelerates trade openness of the host country. On the other hand, some authors maintain that both FDI and trade openness affect each other whilst others says no relationship exist between the two variables. Using the ARDL (Autoregressive distributed lag)-bounds testing approach, this study find that there is no long run relationship between FDI and trade openness in Zimbabwe.