Linkages amongst Foreign Direct Investment, Trade and Trade Policy: An Economic Analysis with Applications to the Food Sector
Our models show that, in OECD countries, tariffs and domestic support, which raise domestic market input prices, can have an effect on how FDI is distributed geographically. FDI may be used to jump tariffs. Investors in a home country may invest in a host country to exploit the preferential tariffs, as from an RTA, which the host has with a third country. Domestic support to agriculture, an input sector into the food sector, can encourage outward investment and discourage inward investment. FDI and trade appear to complement one another. Therefore, policies that open trade may increase FDI and vice versa.
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