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U.S. Processed Food Exports And Foreign Direct Investment In The Western Hemisphere

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  • Mattson, Jeremy W.
  • Koo, Won W.

Abstract

U.S. exports of processed food products and sales by foreign affiliates of U.S. companies in the industry have been growing rapidly. Canada and Mexico are the United States' two major trading partners in the Western Hemisphere, while small quantities of processed food products are exported to a number of other countries in the hemisphere. U.S. Foreign Direct Investment (FDI), like exports, is also largest in Canada and Mexico, but there is also significant FDI in the processed food industry in South American countries such as Brazil and Argentina. U.S. FDI, measured as sales by foreign affiliates, is significantly greater than U.S. processed food exports. The relationship between FDI and trade is subject to much debate and analysis. An econometric model is developed and estimated to determine the factors affecting U.S. processed food exports and sales by affiliates in eight Western Hemisphere countries, as well as the relationship between exports and FDI. Results suggest that U.S. FDI and exports are complements. U.S. exports are also positively influenced by real GDP in the importing country and are negatively influenced by tariffs. There are also large regional differences in U.S. exports after economic variables are accounted for. U.S. exports are higher to Canada and, to a lesser extent, Mexico and are lower to Brazil and Argentina. U.S. FDI is positively influenced by real GDP in the host country, which indicates that U.S. firms invest in countries with greater market opportunities. FDI is negatively influenced by exchange rate volatility, which indicates that U.S. firms try to avoid unstable economies. Free trade agreements with Canada and Mexico also have significant positive effects on U.S. FDI. Results indicate that taking advantage of lower labor costs is not a motivating factor for U.S. firms, and that the real exchange rate does not have a significant effect on either FDI or exports.

Suggested Citation

  • Mattson, Jeremy W. & Koo, Won W., 2002. "U.S. Processed Food Exports And Foreign Direct Investment In The Western Hemisphere," Agribusiness & Applied Economics Report 23547, North Dakota State University, Department of Agribusiness and Applied Economics.
    • Handle: RePEc:ags:nddaae:23547
    DOI: 10.22004/ag.econ.23547
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    References listed on IDEAS

    as
    1. Mattson, Jeremy W. & Koo, Won W., 2002. "U.S. Agricultural Trade With Western Hemisphere Countries And The Effect Of The Free Trade Area Of The Americas," Agribusiness & Applied Economics Report 23525, North Dakota State University, Department of Agribusiness and Applied Economics.
    2. Yulin Ning & Michael R. Reed, 1995. "Locational determinants of the US direct foreign investment in food and kindred products," Agribusiness, John Wiley & Sons, Ltd., vol. 11(1), pages 77-85.
    3. 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.
    4. Somwaru, Agapi & Bolling, H. Christine, 1999. "U.S. Foreign Direct Investment And Trade: Substitutes Or Complements? The Case Of The Food Processing Industry," 1999 Annual meeting, August 8-11, Nashville, TN 21715, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Ravichandran Munirathinam & Mary Marchant & Michael Reed, 1997. "The Canada U.S. free trade agreement: Competitive tradeoffs between foreign direct investment and trade," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 3(3), pages 312-324, August.
    6. Koo, Won W. & Mattson, Jeremy W., 2002. "Processed Food Trade And Foreign Direct Investment Under Nafta," Agribusiness & Applied Economics Report 23566, North Dakota State University, Department of Agribusiness and Applied Economics.
    7. Bolling, H. Christine & Neff, Steven & Handy, Charles R., 1998. "U.S. Foreign Direct Investment in the Western Hemisphere Processed Food Industry," Agricultural Economic Reports 34017, United States Department of Agriculture, Economic Research Service.
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    Cited by:

    1. Shauna Phillips & Fredoun Z. Ahmadi-Esfahani, 2008. "Exchange rates and foreign direct investment: theoretical models and empirical evidence ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(4), pages 505-525, December.
    2. Phillips, Shauna & Ahmadi-Esfahani, Fredoun Z., 2008. "Exchange Rates and Foreign Direct Investment: Theoretical Models and Empirical Evidence," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(4), pages 1-21.

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