Abstract/Summary

Due to the advent of globalisation in the past two decades, foreign direct investment became an essential activity around the world. The motivation for FDI activities could be identified as the following: resource seeking, market seeking, knowledge seeking, and efficiency seeking. FDI undertaken for these different motivations could influence trade, technology, economy, labour division, and natural resources in both the home and the host country. This thesis is a macroeconomic study investigating the causality of foreign direct investment, international trade, local R&D activities, and economic growth. The research is based on 30 OECD countries from 1981 to 2015, which uses data collected from official annual time series data. It includes OECD Statistics, UNCTAD Statistics and the Global Innovation Index. This thesis makes use of a variety of econometric methods to analyse empirical study, comprising of the VAR model and pooling data analysis methods. To interpreting the causality in each country, six country profile factors added to the analysis of whether different country profile factors would alter the causality. The country profile factors include FDI regulatory restriction, institutions, market sophistication, product market regulation, knowledge input, and knowledge and technology output. The major findings were the patterns in each relationship based on the ranking level of the country profile factors of each country. According to the regression result, a bi-direction continually exists if the country either has a pure high-ranking level of all the country profile factors or if they have a pure low ranking level thereof. Otherwise, in the case of a country with a mixed level of country profile factors, a single direction flows to other variables from FDI (such as economic growth, R&D, and international trade), often displayed in these three relationships.