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Investment Liberalization and International Trade

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  • Amiti, Mary
  • Wakelin, Katharine

Abstract

This Paper estimates the cross-price elasticity of exports with respect to investment costs for bilateral relations between 36 countries. We show that the effect of reducing foreign direct investment costs on exports depends on country characteristics and trade costs as predicted by the Markusen (1997, 2002) model. When countries differ in relative factor endowments and trade costs are low, investment liberalization stimulates exports, whereas when countries are similar in terms of relative factor endowments and size, and trade costs are moderate to high, investment liberalization reduces exports.

Suggested Citation

  • Amiti, Mary & Wakelin, Katharine, 2002. "Investment Liberalization and International Trade," CEPR Discussion Papers 3492, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3492
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    More about this item

    Keywords

    exports; foreign direct investment; international trade; investment costs; investment liberalization;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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