What is the Impact of Trade Liberalisation on Attraction (or Deterrence) of Foreign Direct Investments in Emerging Economies?

This paper investigates the trade liberalisation - FDI nexus for a panel of developing and emerging economies that initiated reforms relating to trade liberalisation at different periods of time. The study compares FDI inflows in the pre - reform, hyper - reform, and post - reform periods using a dataset of thirteen countries - countries such as Sri Lanka and Kenya which liberalised early, the mid - phase liberalisers such as India and Brazil, and Ethiopia and Sudan who opened up their borders much later. The results indicate a significant increase in FDI inflows after trade reforms in most countries, which shows that liberalisation usually increases investor confidence and access to international markets. However, some countries, such as Indonesia, Kenya, and Brazil, record temporary decline in FDI shortly after the reforms, showing that the effectiveness of liberalisation is dependent on economic and political stability, complimented by proper sequencing of the reforms. The research conducted also shows that timing of liberalisation is important: the early liberalisers, while showing a less steep uptrend, were able to register more consistent and sustained growth in FDI, whereas countries which liberalised later experienced sharper surges in FDI, oftentimes with a delayed response. Overall, the analysis suggests that while trade liberalisation is an important driver of FDI, its impact is neither uniform nor immediate and is determined by political, economic, and regional contexts.