A pendulum gravity model of outward FDI and export

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The paper proposes a pendulum gravity model of outward FDI and export. Outward FDI and export can be
complementary or substitute, depending on the development stages of outward FDI. The development of
outward FDI is accompanied by advancements in productivity, technology and favorable transformations
in factor endowment differences, which can be reflected in the ratio of export to outward FDI. At early
stages of outward FDI undertakings, the ratio of export to outward FDI is greater or much greater than the
world’s average, outward FDI and export are conjectured to be complementary with our analytical
framework. As outward FDI matures, the pendulum swings to the other side, i.e., the ratio of export to
outward FDI becomes smaller than the world’s average. Outward FDI and export turn into substitute then.
Empirical results and
findings from examining two panel data sets support our conjecture and the
proposed model, which integrate the two seemingly opposing sets of literature.

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关键词：pendulum Gravity outward export model export

Hypothesis 1. The relationship between export and outward
FDI, being complementary or substitute, depends on the stages
of outward FDI as reflected by export to outward FDI ratios.
The development of outward FDI is accompanied by advance-
ments in productivity and technology and favorable transforma-
tions in factor endowment differences reflected by a falling export
to outward FDI ratio with gradual maturity in outward FDI.
Unifying and integrating many of the identified factors that
influence export-outward FDI relationships, the ratio of export to
outward FDI becomes a central indicator for the export-outward
FDI relationship to evolve from complementation to substitution,
as well as the degrees of complementation and substitution.
Moreover, developed economies have entered a mature stage of
outward FDI undertakings with a below world average ratio of
export to outward FDI, a substitute relationship between outward
FDI and export is expected. Therefore:
Hypothesis 1a. FDI from developed mature economies to
developing countries has a negative impact on the exports by
the former.