Abstract:
This study investigates the key determinants of trade and FDI positions between
African emerging economies (AEE) and the world major emerging economies (WEE)
by using the gravity model. The main objective is to identify the core macroeconomic
and socio-cultural factors of bilateral trade and FDI between both sides. Besides, the
study investigates the intra-industry trade to further intricate the type and nature of
their bilateral trade. The WEE are those which are commonly recognized by all rating
institutions and the AEE are identified by developing an index consisting of various
criteria. Importer and exporter-fixed effect is used in order to efficiently test the
impact of many dummy variables. The results illustrate that factors of trade and FDI
are diversified. But, generally, the core form of the GM – GDP and distance –
explains the bilateral trade and FDI positions. In the bilateral trade model, minerals
production rather than petroleum production affects the level of bilateral trade.
Moreover, sharing a common religion and a common language has a positive impact
whereas ODA size, economic freedom, and overall trade volume are not statistically
significant. Furthermore, more corrupted AEE have higher bilateral trade with some
WEE than less corrupted AEE. In the FDI model, to some extent, both petrol and
mineral production attracts FDI from the WEE. In addition, countries sharing similar
language and religion have higher FDI positions than the others whereas higher per
capita income is positively linked with FDI positions. Furthermore, AEE which
signed investment agreements are hosting more FDI positions of the WEE.
Additionally, the linkage between FDI positions and bilateral trade is detected.
However, trade has a stronger impact on FDI than FDI’s impact on trade.
