Atlantic Economic Journal

, Volume 29, Issue 4, pp 420–437

The complementarity between U.S. foreign direct investment stock and trade

  • W. Hejazi
  • A. E. Safarian
Articles

DOI: 10.1007/BF02299331

Cite this article as:
Hejazi, W. & Safarian, A.E. Atlantic Economic Journal (2001) 29: 420. doi:10.1007/BF02299331

Abstract

Within a gravity model framework, this paper will establish that trade and foreign direct investment (FDI) are complementary, using trade and FDI stock data on a bilateral basis between the U.S. and 51 other countries over the period 1982 to 1994. U.S. outward FDI is found to have a larger predicted impact on U.S. exports than does inward FDI. On the other hand, inward FDI is found to have a larger predicted impact on U.S. imports than does U.S. outward FDI. These results are directly linked to patterns of intrafirm trade within the multinational enterprise (MNE), a result consistent with the transactions cost theory of MNEs. In addition, a sectoral analysis indicates that U.S. outward FDI in manufacturing has a large predicted impact on both exports and imports, whereas U.S. outward FDI in services has a large predicted impact on U.S. exports but little or no predicted impact on imports.

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Copyright information

© International Atlantic Economic Society 2001

Authors and Affiliations

  • W. Hejazi
    • 1
  • A. E. Safarian
    • 1
  1. 1.University of TorontoCanada

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