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

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Author Info
Rosa Forte () (CETE, Faculdade de Economia da Universidade do Porto)

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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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Publisher 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
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Handle: RePEc:por:fepwps:140

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Related research
Keywords: Foreign direct investment multinational firms international trade.

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade
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.:
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Full references

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. 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. [Downloadable!]
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