The Economics of Foreign Direct Investment and Trade with an Application to the U.S. Food Processing Industry

Munisamy Gopinath · Daniel Pick · Utpal Vasavada

75 citations0/0 files storedAmerican Journal of Agricultural Economics

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International Business and FDI Agricultural economics and policies Global trade and economics

Abstract

Abstract This article investigates the determinants of foreign direct investment and its relationship to trade in the U.S. food industry. A multinational corporation maximizes profits by choosing between production at home, which is exported, and production in a host country. This introduces the possibility that foreign affiliate sales can substitute and/or complement exports. The empirical framework consists of a four‐equations system with foreign affiliate sales, exports, affiliate employment, and FDI as endogenous variables. The results confirm small substitution between foreign sales and exports, and that the host country's protection policies affect the decision to invest abroad.

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References

1994Investment Under Uncertainty.1984A Simple Theory of International Trade with Multinational Corporations 1985Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition and the International Economy 1991Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach 2019Firm-Specific Assets and the Link Between Exchange Rates and Foreign Direct Investment 1983Factor movements and commodity trade as complements 1967International Capital Movements and the Theory of Tariffs and Trade 1981Foreign Production and Exports in Manufacturing Industries

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2016A pendulum gravity model of outward FDI and export 2008Cross-border acquisitions in the global food sector 1998Exchange Rate Effects on the Relationship between FDI and Trade in the U.S. Food Processing Industry

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