Determinants of Trade and FDI flows in the BRICS countries – Evidences from Gravity Model Analysis

Abstract

In the recent days, some of the key developing countries like; Brazil, Russia, India, China and South Africa (BRICS) have been emerging as major destinations for Foreign Direct Investment (FDI) inflows and Trade inflows. The present study focuses on the factors responsible for trade and FDI flows in the BRICS countries using annual dataset from the period 2008 to 2012. The main objective of this research is to evaluate the determinants of Trade and FDI flows in the BRICS using the Gravity Model. A Panel data set-up is constructed and used to estimate the determinants and evaluate the empirical results. There are two-fold dependent variables in the present study, such as: Trade and FDI flows. Both are analysed independently in two different sections. The independent variables are Gross Domestic Product (GDP), GDP growth rate, distance between host and source countries, commonness in terms of language and border between the pair of countries and population of the host country and these data are collected from World Bank, UNCTAD, CEPII and UN-Comtrade database. The results reveal that the bilateral trade and FDI flows are positively linked with the market size and negatively with the distance between the pair countries.