International Trade, Foreign Direct Investment, Financial Development and Renewable Energy Supply: Panel Data Evidence from Newly Industrialized Countries
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Dec 15, 2022
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Abstract
In many newly industrializing countries (NICs), increased international trade activities are often triggered by several advancements, including attracting foreign direct investment (FDI), financial development, and technological changes. Recently, abundant and diversified renewable energy sources used in production have also started to take their place among these advancements. Although the relationship between FDI, financial developments, and international trade for NICs has been analyzed in many studies, incorporating renewable energy supply’s impact in this linkage has been relatively narrow. This paper aims to fill the gap in the literature by investigating the effects of renewable energy supply on FDI, financial development, and international trade for newly industrialized countries using panel causality and panel cointegration analyses between 1990 and 2019. Our findings indicate (i) uni-directional causality running from international trade to financial development, (ii) uni-directional causality running from renewable energy supply to financial development, and (iii) bi-directional causality between financial development and FDI. The result of the cointegration analysis showed that there is no long-term relationship between the variables.
JEL classification: F14, Q27, C33
Keywords: International trade, Foreign direct investment, Financial development, Renewable energy supply, Panel data analysis
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Yücel, G., Ustabaş, A. and Acar, T. (2022) “International Trade, Foreign Direct Investment, Financial Development and Renewable Energy Supply: Panel Data Evidence from Newly Industrialized Countries”, World Journal of Applied Economics, 8(2), pp. 51-64. doi: 10.22440/wjae.8.2.1.
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Research Articles
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References
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Cho, D.-S., & Moon, H.-C. (2000). From Adam Smith to Michael Porter: Evolution of Competitiveness Theory. World Scientific, London. doi:10.1142/4531
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Leontief, W. (1953). Domestic Production and Foreign Trade; The American Capital Position Re-Examined. Proceedings of the American Philosophical Society, 97(4), 332-349.
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Pesaran, M. H. (2004). General Diagnostic Tests for Cross-section Dependence in Panels (Cambridge Working Papers No. 1240).
Posner, M. (1961). International Trade and Technical Change. Oxford Economic Papers, 13(3), 323–341. doi:10.1093/oxfordjournals.oep.a040877
Rahman, M. M., & Mamun, S. A. K. (2016). Energy Use, International Trade and Economic Growth Nexus in Australia: New Evidence from an Extended Growth Model. Renewable and Sustainable Energy Reviews, 64 , 806-816. doi:10.1016/j.rser.2016.06.039
Ricardo, D. (2008). On the Principles of Political Economy and Taxation (B. Zeren, Trans.). Is Bankasi Kultur Yayinlari, Istanbul.
Ruta, M., & Venables, A. J. (2012). International Trade in Natural Resources: Practice and Policy. Annual Review of Resource Economics, 4 , 331-352. doi:10.1146/annurevresource-110811-114526
Rybczynski, T. (1955). Factor Endowments and Relative Commodity Prices. Economica, 22(88), 336-341. doi:10.2307/2551188
Sadorsky, P. (2012). Energy Consumption, Output and Trade in South America. Energy Economics, 34(2), 476-488. doi:10.1016/j.eneco.2011.12.008
Salvatore, D. (2013). International Economics. Wiley.
Samuelson, P. A. (1948). Economics on Introductory Analysis. McGraw-Hill, New York.
Samuelson, P. A. (1997). Economics (Original Edition: 1948). McGraw-Hill, New York.
Smith, A. (2006). The Wealth of Nations (H. Derin, Trans.). Is Bankasi Kultur Yayinlari, Istanbul.
Stolper, W. F., & Samuelson, P. A. (1941). Protection and RealWages. Review of Economic Studies, 9(1), 58-73. doi:10.2307/2967638
Svaleryd, H., & Vlachos, J. (2005). Financial Markets, The Pattern of Industrial Specialization and Comparative Advantage: Evidence from OECD Countries. European Economic Review, 49(1), 113-144. doi:10.1016/S0014-2921(03)00030-8
Swamy, P. (1970). Efficient Inference in a Random Coefficient Regression Model. Econometrica, 38(2), 311-323. doi:10.2307/1913012
Tatoglu, F. Y. (2013). Ileri Panel Veri Analizi. Beta Basim Yayim Dagitim A.S., Istanbul.
Usman, M., & Balsalobre-Lorente, D. (2022). Environmental Concern in the Era of Industrialization: Can Financial Development, Renewable Energy and Natural Resources Alleviate Some Load? Energy Policy, 162 , 112780. doi:10.1016/j.enpol.2022.112780
Vernon, R. (1966). International Investment and International Trade in the Product Cycle. Quarterly Journal of Economics, 80(2), 190-207. doi:10.2307/1880689
Westerlund, J. (2007). Testing for Error Correction in Panel Data. Oxford Bulletin of Economics and Statistics, 69(6), 709-748. doi:10.1111/j.1468-0084.2007.00477.x
WTO. (2010). World Trade Report 2010: Trade in Natural Resources. https://www.wto.org/english/res e/booksp e/anrep e/world trade report10 e.pdf. (World Trade Organization)
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Ahuja, D., & Tatsutani, M. (2009). Sustainable Energy for Developing Countries. S.A.P.I.EN.S., 2(1), 1-17.
Aizenman, J., & Lee, J. (2007). International Reserves: Precautionary Versus Mercantilist Views, Theory and Evidence. Open Economies Review, 18 , 191-214. doi:10.1007/s11079-007-9030-z
Aktan, C. C. (2010). Monetarizm ve Rasyonel Beklentiler Teorisi. Ekonomi Bilimleri Dergisi , 2(1), 168-187.
Apergis, N., & Payne, J. E. (2011). The Renewable Energy Consumption-Growth Nexus In Central America. Applied Energy, 88(1), 343-347. doi:10.1016/j.apenergy.2010.07.013
Baldwin, R. E. (1971). Determinants of The Commodity Structure of US Trade. American Economic Review, 61(1), 126-146.
Beck, T. (2002). Financial Development and International Trade: Is There a Link? Journal of International Economics, 57(1), 107-131. doi:10.1016/S0022-1996(01)00131-3
Charbit, Y. (2002). The Political Failure of an Economic Theory: Physiocracy. Population, 57(6), 855-883. doi:10.3917/popu.206.0849
Cho, D.-S., & Moon, H.-C. (2000). From Adam Smith to Michael Porter: Evolution of Competitiveness Theory. World Scientific, London. doi:10.1142/4531
Dogan, E. & Ozarslan Dogan, B. (2021) Finansal Gelisme ve Inovasyon, Turkiye'de Yenilenebilir Enerji Uretimini Artiriyor mu? Turkish Studies-Economy, 16(2), 783-797. doi:10.47644/TurkishStudies.47359
Dumitrescu, E.-I., & Hurlin, C. (2012). Testing for Granger Non-causality in Heterogeneous Panels. Economic Modelling, 29(4), 1450-1460. doi:10.1016/j.econmod.2012.02.014
Guan, D., Comite, U., Sial, M. S., Salman, A., Zhang, B., Gunnlaugsson, S. B., . . . Mentel, G. (2021). The Impact of Renewable Energy Sources on Financial Development, and Economic Growth: The Empirical Evidence from an Emerging Economy. Energies, 14(23), 8033. doi:10.3390/en14238033
Halicioglu, F., & Ketenci, N. (2018). Output, Renewable and Non-Renewable Energy Production, and International Trade: Evidence from EU-15 Countries. Energy, 159, 995-1002. doi:10.1016/j.energy.2018.06.197
Heckscher, E. F., & Ohlin, B. (1991). Heckscher-Ohlin Trade Theory (H. Flam & M. J. Flanders, Eds.). World Scientific, London.
Hillman, A. L., & Bullard, C. W. (1978). Energy, the Heckscher-Ohlin Theorem, and US International Trade. American Economic Review, 68(1), 99-106.
Im K. S., Pesaran M. H., & Shin, Y. (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115, 53-74. doi:doi.org/10.1016/s0304-4076(03)00092-7
Irwin, D. D. (1991). Mercantilism as Strategic Trade Policy: The Anglo Dutch Rivalry for the East India Trade. Journal of Political Economy, 99(6), 1296-1314.
Kasperowicz, R., Bilan, Y., & ˇStreimikien˙e, D. (2020). The Renewable Energy and Economic Growth Nexus in European Countries. Sustainable Development, 28(5), 1086-1093. doi:10.1002/sd.2060
Kazgan, G. (2000). Iktisadi Dusunce veya Politik Iktisadin Evrimi. Remzi Kitabevi, Istanbul.
Keesing, D. B. (1965). Labor Skills and International Trade: Evaluating Many Trade Flows with a Single Measuring Device. The Review of Economics and Statistics, 47(3), 287-294. doi:10.2307/1927711
Kenen, P. (1965). Nature, Capital and Trade. Journal of Political Economy, 73(5), 437-460.
Leontief, W. (1953). Domestic Production and Foreign Trade; The American Capital Position Re-Examined. Proceedings of the American Philosophical Society, 97(4), 332-349.
Liu, X., Zhang, S., & Bae, J. (2018). Renewable Energy, Trade, and Economic Growth in The Asia-Pacific Region. Energy Sources, Part B: Economics, Planning, and Policy, 13(2), 96-102. doi:10.1080/15567249.2017.1327994
Menegaki, A. N. (2011). Growth and Renewable Energy in Europe: A Random Effect Model with Evidence for Neutrality Hypothesis. Energy Economics, 33(2), 257-263. doi:10.1016/j.eneco.2010.10.004
Mert, M., & Caglar, A. E. (2016). Yenilenebilir Kaynakli Enerji ve Finansal Gelisme: Asimetrik Nedensellik Uygulamasi. International Multidisciplinary Conference, Antalya, Turkey, 21-22 April 2016.
Orain, A., & Steiner, P. (2016). Physiocracy and Quensay. In G. Faccarello & H. D. Kurz (Eds.), Handbook on the History of Economic Analysis Volume I: Great Economists Since Petty and Boisguilbert (p. 28-39). Edward Elgar Publishing. doi:10.4337/9781785366642.00013
Pesaran, M. H. (2004). General Diagnostic Tests for Cross-section Dependence in Panels (Cambridge Working Papers No. 1240).
Posner, M. (1961). International Trade and Technical Change. Oxford Economic Papers, 13(3), 323–341. doi:10.1093/oxfordjournals.oep.a040877
Rahman, M. M., & Mamun, S. A. K. (2016). Energy Use, International Trade and Economic Growth Nexus in Australia: New Evidence from an Extended Growth Model. Renewable and Sustainable Energy Reviews, 64 , 806-816. doi:10.1016/j.rser.2016.06.039
Ricardo, D. (2008). On the Principles of Political Economy and Taxation (B. Zeren, Trans.). Is Bankasi Kultur Yayinlari, Istanbul.
Ruta, M., & Venables, A. J. (2012). International Trade in Natural Resources: Practice and Policy. Annual Review of Resource Economics, 4 , 331-352. doi:10.1146/annurevresource-110811-114526
Rybczynski, T. (1955). Factor Endowments and Relative Commodity Prices. Economica, 22(88), 336-341. doi:10.2307/2551188
Sadorsky, P. (2012). Energy Consumption, Output and Trade in South America. Energy Economics, 34(2), 476-488. doi:10.1016/j.eneco.2011.12.008
Salvatore, D. (2013). International Economics. Wiley.
Samuelson, P. A. (1948). Economics on Introductory Analysis. McGraw-Hill, New York.
Samuelson, P. A. (1997). Economics (Original Edition: 1948). McGraw-Hill, New York.
Smith, A. (2006). The Wealth of Nations (H. Derin, Trans.). Is Bankasi Kultur Yayinlari, Istanbul.
Stolper, W. F., & Samuelson, P. A. (1941). Protection and RealWages. Review of Economic Studies, 9(1), 58-73. doi:10.2307/2967638
Svaleryd, H., & Vlachos, J. (2005). Financial Markets, The Pattern of Industrial Specialization and Comparative Advantage: Evidence from OECD Countries. European Economic Review, 49(1), 113-144. doi:10.1016/S0014-2921(03)00030-8
Swamy, P. (1970). Efficient Inference in a Random Coefficient Regression Model. Econometrica, 38(2), 311-323. doi:10.2307/1913012
Tatoglu, F. Y. (2013). Ileri Panel Veri Analizi. Beta Basim Yayim Dagitim A.S., Istanbul.
Usman, M., & Balsalobre-Lorente, D. (2022). Environmental Concern in the Era of Industrialization: Can Financial Development, Renewable Energy and Natural Resources Alleviate Some Load? Energy Policy, 162 , 112780. doi:10.1016/j.enpol.2022.112780
Vernon, R. (1966). International Investment and International Trade in the Product Cycle. Quarterly Journal of Economics, 80(2), 190-207. doi:10.2307/1880689
Westerlund, J. (2007). Testing for Error Correction in Panel Data. Oxford Bulletin of Economics and Statistics, 69(6), 709-748. doi:10.1111/j.1468-0084.2007.00477.x
WTO. (2010). World Trade Report 2010: Trade in Natural Resources. https://www.wto.org/english/res e/booksp e/anrep e/world trade report10 e.pdf. (World Trade Organization)
WTO. (2013). World Trade Report 2013: Factors Shaping the Future of World Trade. https://www.wto.org/english/res e/booksp e/world trade report13e.pdf. (World Trade Organization)