| Abstract: |
Theoretically, FDI and international trade can be regarded as substitutes or
complements. This paper examines the relationships between the inflows of
foreign direct investment (FDI) into Ukraine, as well as the level of imports
to and exports from the country. Empirically, the paper reveals that FDI from
the European Union (EU) into Ukraine in extractive industries is mostly
export-oriented and consequently complements trade, whereas FDI into
manufacturing industries tends to substitute for imports. It is argued that
primary- industry FDI from the EU is motivated by Ukraine’s comparatively
abundant and cheap natural resources, whereas secondary-industry FDI is
motivated by cost factors in Ukraine such as low labor cost and on the revenue
side by its large and relatively untapped substitution, although tests of this
hypothesis at aggregate levels were inconclusive. |