| Abstract: | Exports and overseas production are alternative modes for servingforeign customers. Empirical studies usually find that foreignmarkets are served through both modes and that countries receivinghigh levels of exports also host large amounts of foreign directinvestment (FDI). This paper evaluates several possible waysto reconcile the facts about FDI and exports with the standardtheory of multinational corporations. We argue that coexistenceand correlation of FDI and exports are consistent with modelswhere the two modes are substitutes. This substitutive relationshipfinds collaborative evidence in the results of several papers.Nevertheless, a significant body of evidence suggests that FDIsometimes complements exports through the mechanism of stimulatingexports of intermediate goods for use by overseas affiliates. |
