THE ECONOMICS OF FOREIGN DIRECT INVESTMENT AND TRADE WITH AN APPLICATION TO THE U.S. FOOD PROCESSING INDUSTRY

This paper investigates the determinants of foreign direct investment (FDI) and its relationship to trade in the U.S. food processing industry. A representative multinational corporation maximizes profits by choosing between production in the home country, which is exported, and production in a foreign country. This introduces the possibility that foreign affiliate sales can be a substitute and/or complement for exports. The empirical framework consists of a system of four equations with foreign affiliate sales, exports, affiliate employment, and FDI as endogenous variables. The results confirm a small substitution between foreign affiliate sales and exports. The empirical evidence supports the hypothesis that FDI is also protection-jumping.


Issue Date:
1998
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/51205
Total Pages:
34
Series Statement:
Working Paper
98-1




 Record created 2017-04-01, last modified 2017-08-25

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