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A theory of the relationship between foreign direct investment and trade

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Author Info
José Pedro Pontes () (Technical University of Lisbon and UECE)

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Abstract

Although empirical evidence shows that the relationship between foreign direct investment (FDI) and trade is complex, theories of international investment (both vertical and horizontal) present simple patterns of relation.By allowing for different locations of vertically-related stages of production and distinguishing between trade in finished goods and trade in intermediate goods, this paper introduces a nonmonotonic relationship between multinational firms and trade costs, which must be neither too high nor too low for FDI to arise. Exports and FDI behave as complements for high level of trade costs and as substitutes otherwise.

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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 6 (2004)
Issue (Month): 2 ()
Pages: 1-8
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ebl:ecbull:v:6:y:2004:i:2:p:1-8

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Related research
Keywords: Foreign Direct Investment; Intermediate Goods; Multinationals; Noncooperative Games; Trade;

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Find related papers by JEL classification:
F2 - International Economics - - International Factor Movements and International Business
F1 - International Economics - - Trade

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Horstmann, Ignatius J. & Markusen, James R., 1992. "Endogenous market structures in international trade (natura facit saltum)," Journal of International Economics, Elsevier, vol. 32(1-2), pages 109-129, February. [Downloadable!] (restricted)
  2. Jyothi Pantulu & Jessie P.H. Poon, 2003. "Foreign direct investment and international trade: evidence from the US and Japan," Journal of Economic Geography, Oxford University Press, vol. 3(3), pages 241-259, July.
  3. S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Pain, Nigel & Wakelin, Katharine, 1998. "Export Performance and the Role of Foreign Direct Investment," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 66(0), pages 62-88, Supplemen.
  5. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Rowthorn, R E, 1992. "Intra-industry Trade and Investment under Oligopoly: The Role of Market Size," Economic Journal, Royal Economic Society, vol. 102(411), pages 402-14, March. [Downloadable!] (restricted)
  7. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-71, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bezuidenhout, Henri & Naude, Wim, 2008. "Foreign Direct Investment and Trade in the Southern African Development Community," Working Papers RP2008/88, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  2. Fragkiskos Filippaios & Constantina Kottaridi, 2008. "Complements or Substitutes? New Theoretical Considerations and Empirical Evidence on the Imports and FDI Relationship," Working Papers 0026, University of Peloponnese, Department of Economics. [Downloadable!]
  3. Jose Pedro Pontes, 2006. "FDI and trade: complements and substitutes," Working Papers 2006/03, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
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This page was last updated on 2009-11-16.

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