Abstract

Extensive research has explored the interaction between outward foreign direct investment (OFDI) and international trade, aiming to elucidate the diverse channels through which OFDI affects trade dynamics. However, there remains a notable gap in the existing literature concerning a thorough synthesis of the effects of OFDI on international trade. Therefore, we conducted a thorough review of 134 empirical studies published from 1949 to 2024 across various journals and presented our findings. The result indicates the diverse trade effects of foreign direct investment, including substitution effect, complementary effect, and contingent effect. The proportion of articles is 14%, 49%, and 37%, respectively. The research findings indicate that OFDI’s trade substitution effect is primarily generated through horizontal investment, whereas its trade complement effect mainly stems from vertical investment. The relationship between OFDI and trade exhibits contingent effects that are moderated by various determinants, particularly investment motives, industry sectors, trade classifications, and host country characteristics. The study provides a foundation for future studies to further explore the mechanisms underpinning these effects and to guide policymakers in crafting informed policies that harness the benefits of OFDI while mitigating potential trade-offs.