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A Unified Approach to Intra-Industry Trade and Direct Foreign Investment

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Author Info
James R. Markusen
Keith E. Maskus

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Abstract

Economic interactions among the high-income developed countries are characterized by high degrees of both intra-industry trade and intra-industry affiliate production and sales. Similar high-income countries both heavily trade with and invest into each other. The purpose of this paper is to show how the theory of direct investment can now be integrated with the theory of international trade in goods, and to show how the two combine to determine the pattern of trade and foreign affiliate production. Empirical estimation gives good support to the predictions of the theory for intra-industry affiliate sales, with somewhat weaker results for intra-industry trade. Results confirm that the intra-industry affiliate sales index rises relative to the intra-industry trade index as countries become richer and more similar in size and in relative endowments.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8335.

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Date of creation: Jun 2001
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Handle: RePEc:nbr:nberwo:8335

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Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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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. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-44, September. [Downloadable!] (restricted)
  2. Markusen, James R, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-89, Spring. [Downloadable!] (restricted)
  3. Markusen, James R. & Venables, Anthony J., 1996. "The Theory of Endowment, Intra-Industry and Multinational Trade," CEPR Discussion Papers 1341, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. David L. Carr & James R. Markusen & Keith E. Maskus, 2001. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," American Economic Review, American Economic Association, vol. 91(3), pages 693-708, June. [Downloadable!] (restricted)
    Other versions:
  5. James R. Markusen & Keith E. Maskus, 1999. "Multinational Firms: Reconciling Theory and Evidence," NBER Working Papers 7163, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. S. Lael Brainard, 1993. "An Empirical Assessment of the Factor Proportions Explanation of Multi-National Sales," NBER Working Papers 4583, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. James R. Markusen, 1998. "Multinational Firms, Location and Trade," The World Economy, Blackwell Publishing, vol. 21(6), pages 733-756, 08. [Downloadable!] (restricted)
  8. Ekholm, Karolina, 1998. "Headquarter Services and Revealed Factor Abundance," Review of International Economics, Blackwell Publishing, vol. 6(4), pages 545-53, November.
  9. Robert E. Lipsey, 1993. "Foreign Direct Investment in the United States: Changes over Three Decades," NBER Chapters, in: Foreign Direct Investment, pages 113-172 National Bureau of Economic Research, Inc. [Downloadable!]
  10. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May. [Downloadable!] (restricted)
  11. Karolina Ekholm,, . "Factor Endowments and the Pattern of Affiliate Production by Multinational Enterprises," Discussion Papers 97/19, University of Nottingham, CREDIT.
  12. 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)
  13. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December. [Downloadable!] (restricted)
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(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. Muller, A.R. & Tulder, R.J.M. van, 2005. "Exploring Patterns of Upstream Internationalization: The Role of Home-region ‘Stickiness’," Research Paper ERS-2005-084-ORG Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  2. Uppal, Yogesh, 2008. "Preferential trading areas: investment and welfare effects when countries differ in their size," MPRA Paper 15193, University Library of Munich, Germany. [Downloadable!]
  3. Zhaoyong Zhang &  LI Chuan, 2006. "Country-specific factors and the pattern of intra-industry trade in China's manufacturing," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(8), pages 1137-1149. [Downloadable!]
  4. Mariam Camarero & Cecilio Tamarit, 2003. "Estimating exports and imports demand for Manufactured goods: The role of FDI," European Economy Group Working Papers 22, European Economy Group. [Downloadable!]
  5. Filippo Reganati & Rosanna Pittiglio, 2007. "Two-Way International Trade And Production In Italy: A Country/Industry Specific Analysis," Quaderni DSEMS 19-2007, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia. [Downloadable!]
  6. Bishwanath Goldar & Rashmi Banga, 2007. "Impact of Trade Liberalization on Foreign Direct Investment in Indian Industries," Working Papers 3607, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada.. [Downloadable!]
  7. Nielsen, Jørgen Ulff-Møller & Pawlik, Konrad, 2005. "The export intensity of foreign affiliates in transition economies - the importance of the organization of production," Working Papers 2005-7, University of Aarhus, Aarhus School of Business, Department of Management. [Downloadable!]
  8. James R. Markusen & Keith E. Maskus, 2001. "General-Equilibrium Approaches to the Multinational Firm: A Review of Theory and Evidence," NBER Working Papers 8334, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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