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International Trade And Foreign Direct Investment: Substitutes Or Complements?

Author

Listed:
  • Marchant, Mary A.
  • Cornell, Dyana N.
  • Koo, Won W.

Abstract

International agricultural trade has evolved over time. Processed foods and developing countries have become major growth markets for U.S. agricultural exports, and foreign direct investment (FDI) has become even more important than exports as a means of accessing foreign markets. The critical question is whether FDI is a substitute for or a complement of exports. This research builds upon an existing theoretical FDI model and contributes to the literature through the development of a simultaneous equation system for FDI and exports, which is estimated using two-stage least squares. Empirical analyses were used to examine the relationship between U.S. FDI and exports of processed foods into East Asian countries - China, Japan, Singapore, South Korea, and Taiwan - from 1989 to 1998. The results indicated that a complementary relationship between FDI and exports. Additionally, these results indicated that interest rates, exchange rates, gross domestic product (GDP), and compensation rates are important variables that influence U.S. FDI in East Asian countries, while GDP, exchange rates, and export prices are important export determinants.

Suggested Citation

  • Marchant, Mary A. & Cornell, Dyana N. & Koo, Won W., 2002. "International Trade And Foreign Direct Investment: Substitutes Or Complements?," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 34(02), August.
  • Handle: RePEc:ags:joaaec:15471
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    References listed on IDEAS

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    1. Edmondson, William & Jones, Veronica, 2001. "Processed Food Trade Deficit Continues in 2000," Food Review: The Magazine of Food Economics, United States Department of Agriculture, Economic Research Service, vol. 24(3).
    2. Daniel Pick & Utpal Vasavada, 1998. "Exchange Rate Effects on the Relationship between FDI and Trade in the U.S. Food Processing Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(5), pages 1073-1079.
    3. Marchant, Mary A. & Saghaian, Sayed H. & Vickner, Steven S., 1999. "Trade And Foreign Direct Investment Management Strategies For U.S. Processed Food Firms In China," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IFAMA), vol. 2(02).
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    Cited by:

    1. repec:wfo:wstudy:39891 is not listed on IDEAS
    2. Raphaël Chiappini, 2016. "Do overseas investments create or replace trade? New insights from a macro-sectoral study on Japan," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(3), pages 403-425, June.
    3. Bolling, Christine & Shane, Mathew & Roe, Terry, 2007. "Exchange Rates and U.S. Foreign Direct Investment in the Global Processed Food Industry," Agricultural and Resource Economics Review, Cambridge University Press, vol. 36(02), pages 230-238, October.
    4. Garcia-Fuentes, Pablo A. & Kennedy, P. Lynn & Ferreira, Gustavo F.C., 2013. "U.S. Foreign Direct Investment in Latin America and the Caribbean: A case of Remittances and Market Size," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 142985, Southern Agricultural Economics Association.
    5. Luljeta Hajderllari & Kostas Karantininis & Lartey G. Lawson, 2012. "FDI as an Export-Platform: A Gravity Model for the Danish Agri-Food Industry," IFRO Working Paper 2012/7, University of Copenhagen, Department of Food and Resource Economics.
    6. Ronny Thomas & K. Narayanan, 2016. "Outward FDI, Exports and Technological Efforts: A Study of Indian Manufacturing Firms," Working Papers id:11383, eSocialSciences.
    7. Asgari, Mahdi, 2016. "U.S. Food Manufacturing Industry: The Choice of Exports vs. FDI," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 230135, Southern Agricultural Economics Association.
    8. Martin Falk & Mariya Hake, 2008. "A Panel Data Analysis on FDI and Exports," FIW Research Reports series I-012, FIW.
    9. Shu-Chen Chang, 2005. "The dynamic interactions among foreign direct investment, economic growth, exports and unemployment: evidence from Taiwan," Economic Change and Restructuring, Springer, vol. 38(3), pages 235-256, December.
    10. Cuyvers, Ludo & Soeng, Reth & Plasmans, Joseph & Van Den Bulcke, Daniel, 2011. "Determinants of foreign direct investment in Cambodia," Journal of Asian Economics, Elsevier, vol. 22(3), pages 222-234, June.
    11. CUYVERS, Ludo & PLASMANS, Joseph & SOENG, Reth & VAN DEN BULCKE, Daniël, 2008. "Determinants of foreign direct investment in Cambodia: Country-specific factor differentials," Working Papers 2008003, University of Antwerp, Faculty of Applied Economics.
    12. Furtan, William Hartley & Holzman, J.J., 2004. "The Effect of FDI on Agriculture and Food Trade: An Empirical Analysis 1987-2001," Agriculture and Rural Working Paper Series 28037, Statistics Canada.
    13. Raphaël Chiappini, 2013. "Do Overseas investments create or replace trade? New insights from a macro-sectoral study on Japan," Working Papers hal-00854109, HAL.

    More about this item

    Keywords

    East Asia; exports; foreign direct investment; international trade; processed foods; International Relations/Trade; F47; Q17; C3; F17;

    JEL classification:

    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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