Estimation of the Effects of Foreign Direct Investmenton Trade Flows of Industrial Sector in OECD Countries

Foreign direct investment(FDI) can increase the capacity for producing export goods.The purpose of this study was to investigate the relationship of FDI to industrial trade flows (ITF) in the OECD countries by using gravity model and pooled data for the years of 2000 to 2007. The results showed that there was a positive and statistically significant relationship of FDI to ITFin the countries under study. Also, such other factors as national income and size of population had positive and statistically significant effects on ITF. Geographical distances had negative effects, however.