A Theory of the Relationship Between Foreign Direct Investment and Trade
AbstractAlthough 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 non monotonic relationship between multinational firms and trade costs, which must be neither too high nor too low for FDI to arise. Exports and FDI be have as complements for high levels of trade costs and as substitutes otherwise. J.E.L. Classification: F23, F12, C72. Keywords: Foreign Direct Investment, Multinationals, Trade, Intermediate Goods, Non cooperative Games.
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Bibliographic InfoPaper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics with number 2003/11.
Date of creation: 2003
Date of revision:
Contact details of provider:
Postal: Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: https://aquila1.iseg.ulisboa.pt/aquila/departamentos/EC
Other versions of this item:
- José Pedro Pontes, 2004. "A theory of the relationship between foreign direct investment and trade," Economics Bulletin, AccessEcon, vol. 6(2), pages 1-8.
- José Pedro Pontes, 2004. "A theory of the relationship between foreign direct investment and trade," ERSA conference papers ersa04p47, European Regional Science Association.
- F2 - International Economics - - International Factor Movements and International Business
- F1 - International Economics - - Trade
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