Foreign Direct Investment Strategies Effects on the Brazil's Trade Balance: A Causality Analysis

Abstract

This study investigated if there were evidences that foreign direct investment (FDI) growth improved the Brazilian trade balance through an expansion in exports and import and if there was a predictable relationship between FDI strategies and trade balances. Results show that FDI promotes an increase in exports and also show an increase in the level of imports, especially for those companies engaged in market-seeking strategy. It also shows that FDI cause exports in the short and long-run and would cause imports in the short-run, but not in the long-run. The Granger causality test for the exports equation showed that FDI inflows in Brazil, lagged of three years, stimulated the export activity indicating that FDI strategies do not automatically lead to positive externalities on trade balance.