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International Trade And Foreign Direct Investment: Substitutes Or Complements?

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

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.

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File URL: http://purl.umn.edu/15471
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Article provided by Southern Agricultural Economics Association in its journal Journal of Agricultural and Applied Economics.

Volume (Year): 34 (2002)
Issue (Month): 02 (August)
Pages:

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Handle: RePEc:ags:joaaec:15471
Contact details of provider: Web page: http://www.saea.org/jaae/jaae.htm

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  1. 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.
  2. 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 (IAMA), vol. 2(02).
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