The complementarity between U.S. foreign direct investment stock and trade |
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Authors: | W Hejazi A E Safarian |
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Affiliation: | (1) University of Toronto, Canada |
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Abstract: | Within a gravity model framework, this paper will establish that trade and foreign direct investment (FDI) are complementary,
using trade and FDI stock data on a bilateral basis between the U.S. and 51 other countries over the period 1982 to 1994.
U.S. outward FDI is found to have a larger predicted impact on U.S. exports than does inward FDI. On the other hand, inward
FDI is found to have a larger predicted impact on U.S. imports than does U.S. outward FDI. These results are directly linked
to patterns of intrafirm trade within the multinational enterprise (MNE), a result consistent with the transactions cost theory
of MNEs. In addition, a sectoral analysis indicates that U.S. outward FDI in manufacturing has a large predicted impact on
both exports and imports, whereas U.S. outward FDI in services has a large predicted impact on U.S. exports but little or
no predicted impact on imports.
Detailed comments and suggestions were provided by Joe Daniels, Albert Berry, and seminar participants at the University of
Toronto, York University, Industry Canada, and the 1999 annual Canadian Economics Association meeting. Research assistance
was provided by George Georgopoulos and Anthony Yao. The authors are responsible for any remaining errors. |
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Keywords: | |
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