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The relationship between foreign direct investment and international trade. Substitution or complementarity? A survey

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  • Rosa Forte

    (CETE, Faculdade de Economia da Universidade do Porto)

Abstract

Theoretically, the explanatory approaches of foreign direct investment (FDI), as for example, the internalization theory and the eclectic paradigm, and general equilibrium trade models that incorporate horizontal multinational firms (MNEs), sustain the existence of a substitution relationship between FDI and international trade. Models of vertical FDI and considerations concerning demand, for their part, support a complementarity relationship. Empirically, however, it is difficult to find substitution between the two variables. This work presents a review of the existing theoretical and empirical literature, highlighting the reasons that underlie the apparent incongruity between theory and empirical works, and drawing attention to gaps that should be corrected in future works.

Suggested Citation

  • Rosa Forte, 2004. "The relationship between foreign direct investment and international trade. Substitution or complementarity? A survey," FEP Working Papers 140, Universidade do Porto, Faculdade de Economia do Porto.
  • Handle: RePEc:por:fepwps:140
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    Cited by:

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    2. Miren Lafourcade & Elisenda Paluzie, 2011. "European Integration, Foreign Direct Investment (FDI), and the Geography of French Trade," Regional Studies, Taylor & Francis Journals, vol. 45(4), pages 419-439.
    3. Eromenko, Igor, 2011. "Accession to the WTO. Computable General Equilibrium Analysis: the Case of Ukraine," MPRA Paper 67535, University Library of Munich, Germany.
    4. Ana Paula Africano & Manuela Magalhaes, 2005. "FDI and Trade in Portugal: a gravity analysis," FEP Working Papers 174, Universidade do Porto, Faculdade de Economia do Porto.
    5. Mario Biggeri & Marco Sanfilippo, 2009. "Understanding China's move into Africa: an empirical analysis," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 7(1), pages 31-54.
    6. Krammer, Marius Sorin, 2008. "International R&D spillovers in transition countries: the impact of trade and foreign direct investment," Kiel Advanced Studies Working Papers 446, Kiel Institute for the World Economy (IfW).
    7. Miren Lafourcade & Elisenda Paluzie, 2008. "European integration, FDI and the geography of French trade," Working Papers halshs-00586834, HAL.
    8. Vera Silva & Rosa Forte, 2018. "The Impact of Foreign Direct Investment on Home Country Exports," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 9(01n02), pages 1-22, February.
    9. Roberta Capello & Ugo Fratesi, 2012. "Modelling Regional Growth: An Advanced MASST Model," Spatial Economic Analysis, Taylor & Francis Journals, vol. 7(3), pages 293-318, September.
    10. Anh D. Pham & Ha Pham & Kim Cuong Ly, 2019. "Double Taxation Treaties as a Catalyst for Trade Developments: A Comparative Study of Vietnam’s Relations with ASEAN and EU Member States," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 12(4), pages 1-16, November.

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    More about this item

    Keywords

    Foreign direct investment; multinational firms; international trade.;
    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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