Abstract:

Brazil, Russia, India and China have become four of the top five of the most attractive countries to FDI This paper comparatively analyzes the relationship between inward FDI flows and the level of trade in BRICs, in order to explore the impact of FDI on import and export trade in emerging markets and developing host countries The empirical study is based on Johansen Co-integration test, ECM model and Granger causality test during the period from 1980 to 2008 The results confirm that the relationship between inward FDI and trade is complementary rather than substitutive Inward FDI exerts a considerable trade creation effect on export and import in Brazil, China and India, but not in Russia, and this effect is the strongest in Brazil Meanwhile, trade stimulates inward FDI in most of BRICs except China The results theoretically prove that free FDI and trade policy from BRIC countries should be continued in future

Key words: BRIC countries, foreign direct investment, error correction model, trade creation effect