Exporting and FDI as Alternative Strategies
Exports and overseas production are alternative modes for serving foreign customers. Empirical studies usually find that foreign markets are served through both modes and that countries receiving high levels of exports also host large amounts of foreign direct investment (FDI). This paper evaluates several possible ways to reconcile the facts about FDI and exports with the standard theory of multinational corporations. We argue that coexistence and correlation of FDI and exports are consistent with models where the two modes are substitutes. This substitutive relationship finds collaborative evidence in the results of several papers. Nevertheless, a significant body of evidence suggests that FDI sometimes complements exports through the mechanism of stimulating exports of intermediate goods for use by overseas affiliates. Copyright 2004, Oxford University Press.
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