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International Trade And Foreign Direct Investment: Substitutes Or Complements?

Author

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  • 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(2), pages 1-14, August.
    • Handle: RePEc:ags:joaaec:15471
    DOI: 10.22004/ag.econ.15471
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    1. Munisamy Gopinath & Daniel Pick & Utpal Vasavada, 1999. "The Economics of Foreign Direct Investment and Trade with an Application to the U.S. Food Processing Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(2), pages 442-452.
    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, vol. 2(2), pages 1-13.
    3. Carter, Colin A. & Yilmaz, Alper, 1999. "Foreign Direct Investment (Fdi) And Trade - Substitutes And Complements? An Application To The Processed Food Industry," 1999 Annual meeting, August 8-11, Nashville, TN 21665, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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    5. Munisamy Gopinath & 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.
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    Cited by:

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    9. 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.
    10. Bolling, H. Christine & Shane, Mathew & Roe, Terry L., 2007. "Exchange Rates and U.S. Foreign Direct Investment in the Global Processed Food Industry," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 36(2), pages 1-9, October.
    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 Business and 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. Shinichi Furuzawa & Lily Kiminami, 2017. "Changes in the international specialization of food manufacturing industry in East Asia," Asia-Pacific Journal of Regional Science, Springer, vol. 1(2), pages 359-378, October.
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    More about this item

    Keywords

    International Relations/Trade;

    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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