Investigating the Link between Trade Openness and Foreign direct Investment for the World Economy: A Meta-Regression Analysis

Instead of having recourse to conventional literature surveys, this research carries out a rigorous synthesis of the literature via a meta-regression analysis (MRA) by contributing to resolve the debate of inconsistencies, and to point a robust connection between trade openness and foreign direct investment (FDI). As such, it covers 62 empirical studies providing 975 estimates of the effect size published, over a period of 20 years, between 2004 and 2023. This MRA determines the extent to which the effect is affected by Type I and Type II publication selection bias via both a quantitative and qualitative analysis, and determines which sources explain the wide variations in the reported effects between the two variables. The most important contribution of this MRA is the identification of a range of sample and the analysis of the research characteristics, which account for most of the sources of heterogeneity (over 50 control variables) in this literature. As such, this research finds that differences in primary studies affect reported effect size through the following two main sources: (i) country heterogeneity, and (ii) modeling heterogeneity. While performing the simple meta-analysis, it has been found that trade openness has a positive impact on FDI, and thus is likely to enhance investment flows. Although the results show the existence of an overall authentic effect beyond publication bias, its size is relatively small. Given the variety of methodologies, samples and measurements, a weighted least squares meta-regression analysis (WLS-MRA) approach has been applied to test for the robustness of the estimated influences on the effect size.