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The relationship between foreign direct investment and international trade. Substitution or complementarity? A survey

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  • Rosa Forte

    ()
    (CETE, Faculdade de Economia da Universidade do Porto)

Abstract

Theoretically, the explanatory approaches of foreign direct investment (FDI), as for example, the internalization theory and the eclectic paradigm, and general equilibrium trade models that incorporate horizontal multinational firms (MNEs), sustain the existence of a substitution relationship between FDI and international trade. Models of vertical FDI and considerations concerning demand, for their part, support a complementarity relationship. Empirically, however, it is difficult to find substitution between the two variables. This work presents a review of the existing theoretical and empirical literature, highlighting the reasons that underlie the apparent incongruity between theory and empirical works, and drawing attention to gaps that should be corrected in future works.

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Bibliographic Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 140.

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Length: 25 pages
Date of creation: Mar 2004
Date of revision:
Handle: RePEc:por:fepwps:140

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Keywords: Foreign direct investment; multinational firms; international trade.;

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References

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Cited by:
  1. repec:hal:wpaper:halshs-00586834 is not listed on IDEAS
  2. Ana Paula Africano & Manuela Magalhaes, 2005. "FDI and Trade in Portugal: a gravity analysis," FEP Working Papers 174, Universidade do Porto, Faculdade de Economia do Porto.

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