Do Multinationals Beat Down Developing Countries’ Export Prices? The Impact of FDI on Net Barter Terms of Trade

Abstract

This paper explores the economic relationship between foreign direct investment to developing countries and the export prices of the latter, measured by terms of trade. It is first shown that economic theory suggests such a relationship for various reasons but is inconclusive about the direction of the effect. To address this open issue empirically, I analyze data on more than 50 developing countries throughout the period 1980-2008 using dynamic panel data methods. The results show that multinational corporations, measured by data on foreign direct investment, had an economically relevant and statistically significant positive impact on developing countries’ net barter terms of trade. A higher level of education in the developing country fosters this effect.