Atlantic Economic Journal

, Volume 29, Issue 4, pp 420–437 | Cite as

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

  • W. Hejazi
  • A. E. Safarian
Articles

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.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Balasubramanyam, V. N.; Salisu, M.; Sapsford, D. “Foreign Direct Investment and Growth in EP and IS Countries,”The Economic Journal, 106, 1996, pp. 92–105.Google Scholar
  2. Bayoumi, Tamim; Lipworth, Gabrielle. “Japanese Foreign Direct Investment and Regional Trade,”Finance and Development, 34, 3, 1997, pp. 97–103.Google Scholar
  3. Bellak, Christian; Cantwell, John. “Foreign Direct Investment: How Much is It Worth? Comment on S. J. Gray and A. M. Rugman,”Transnational Corporations, 5, 1, 1996, pp. 85–97.Google Scholar
  4. Blomström, Magnus; Kokko, Ari O. “Home Country Effects of Foreign Direct Investment: Sweden,” in S. Globerman, ed.,Canadian Based Multinationals, Ottawa, Canada: Industry Canada Research, 1994, pp. 341–64.Google Scholar
  5. Blomström, Magnus; Lipsey, Robert E.; Kulchycky, Ksenia. “U.S. and Swedish Direct Investment and Exports,” in R. E. Baldwin, ed.,Trade Policy Issues and Empirical Analysis, Chicago, IL: University of Chicago Press, 1988, pp. 259–97.Google Scholar
  6. Borensztein, E.; De Gregorio, J.; Lee, J. W. “How Does Foreign Direct Investment Affect Economic Growth?,”Journal of International Economics, 45, 1998, pp. 115–35.CrossRefGoogle Scholar
  7. Brainard, S. Lael. “An Empirical Assessment of the Proximity-Concentration Trade-off Between Multinational Sales and Trade,”American Economic Review, 87, 4, 1997, pp. 520–45.Google Scholar
  8. Caves, Richard.Multinational Enterprise and Economic Analysis, New York, NY: Cambridge University Press, 1996.Google Scholar
  9. Collins, William J.; O'Rourke, Kevin H.; Williamson, Jeffrey G. “Were Trade and Factor Mobility Substitutes in History?,” working paper, 6059, National Bureau of Economic Research, 1997.Google Scholar
  10. Deardorff, Alan V. “Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World,” working paper, 5377, National Bureau of Economic Research, 1995.Google Scholar
  11. Ethier, Wilfred. “National and International Returns to Scale in the Modern Theory of International Trad”,American Economic Review, 72, 1982, pp. 389–405.Google Scholar
  12. Frankel, J. A.; Wei, Shang-Jin; Stein, Ernesto. “APEC and Regional Trading Arrangements in the Pacific,” in Wendy Dobson; Frank Flatters, eds.,Pacific Trade and Investment: Options for the 1990s, Kingston, Canada: John Deutsch Institute, 1995, pp. 289–312.Google Scholar
  13. Globerman, S., ed.Canadian Based Multinationals, Ottawa, Canada: Industry Canada Research, 1994.Google Scholar
  14. Graham, Edward M. “Canadian Direct Investment Abroad and the Canadian Economy: Some Theoretical and Empirical Implications,” in S. Globerman, ed.,Canadian Based Multinationals, Ottawa, Canada: Industry Canada Research, 1994, pp. 127–213.Google Scholar
  15. Gray, S. J.; Rugman, Alan. “Does the United States Have a Deficit with Japan in Foreign Direct Investment?,”Transnational Corporations, 3, 2, 1994, pp. 127–37.Google Scholar
  16. Grosse, Robert; Trevino, Len. “Foreign Direct Investment in the United States: An Analysis by Country of Origin,”Journal of International Business Studies, 27, 1, 1996, pp. 139–56.Google Scholar
  17. Hejazi, W.; Safarian, A. E. “Trade, Foreign Direct Investment, and R&D Spillovers,”Journal of International Business Studies, 30, 3, 1999, pp. 491–511.Google Scholar
  18. Hejazi, Walid; Trefler, Daniel. ”Explaining Canada's Trade with the Asia-Pacific,” in Richard Harris, ed.,The Asia Pacific Region and the Global Economy: A Canadian Perspective, Ottawa, Canada: Industry Canada Research, 1996, pp. 47–83.Google Scholar
  19. Hufbauer, G. C.; Adler, M. “Overseas Manufacturing Investment and the Balance of Payments,”Tax Policy Research Study, 1, 1968.Google Scholar
  20. International Monetary Fund.Direction of Trade Statistics, various.Google Scholar
  21. Journal of Economic Perspectives. Summer 1995.Google Scholar
  22. __. Fall 1998.Google Scholar
  23. Journal of International Business Studies. 25, 4, 1994.Google Scholar
  24. Lipsey, Robert E.; Weiss, Merle Yahr. “Foreign Production and Exports in Manufacturing Industries,”The Review of Economics and Statistics, 63, 4, November 1981, pp. 488–94.Google Scholar
  25. __. “Foreign Production and Exports of Individual Firms,”The Review of Economics and Statistics, 66, 2, May 1984, pp. 304–8.Google Scholar
  26. Malnight, Thomas W. “The Transition from Decentralized to Network-Based MNC Structures: An Evolutionary Perspective,”Journal of International Business Studies, 27, 1, 1996, pp. 43–65.Google Scholar
  27. McFetridge, D. G., ed.Foreign Investment, Technology, and Economic Growth, Ottawa, Canada: Industry Canada Research, 1991.Google Scholar
  28. Mundell, Robert A. “International Trade and Factor Mobility,”American Economic Review, 47, 1957, pp. 321–35.Google Scholar
  29. NBER Reporter. Summer 1997.Google Scholar
  30. NBER Reporter. Spring 1998.Google Scholar
  31. Pfaffermayr, M. “Foreign Direct Investment and Exports: A Time Series Approach,”Applied Economics, 26, 1994, pp. 337–51.Google Scholar
  32. Rao, Someshwar; Ahmad, Ashfaq; Legault, Marc. “Canadian Based Multinationals: An Analysis of Activities and Performance,” in S. Globerman, ed.,Canadian Based Multinationals, Ottawa, Canada: Industry Canada Research, 1994, pp. 63–123.Google Scholar
  33. Safarian, A. E.Foreign Direct Investment: A Survey of Canadian Research, Montreal, Canada: Institute for Research on Public Policy, 1985.Google Scholar
  34. Summers, Robert; Heston, Alan. “The Penn World Tables (Mark 5): An Expanded Set of International Comparisons, 1950–1988,”Quarterly Journal of Economics, 106, 1991, pp. 327–68.Google Scholar
  35. Swedenborg, B.The Multinational Operations of Swedish Firms: An Analysis of Determinants and Effects, Stockholm, Sweden: Industrial Institute for Economic and Social Research, 1979.Google Scholar
  36. United Nations Conference on Trade and Development.World Investment Report 1996: Investment, Trade, and International Policy Arrangements, E.96.II.A.14., 1996.Google Scholar
  37. U.S. Department of Commerce. “Foreign Direct Investment in the United States: Detail for Historical Cost Position and Related Capital and Income Flows,”Survey of Current Business, August 1995, pp. 53–78.Google Scholar
  38. Zeile, William J. “U.S. Intrafirm Trade in Goods,”Survey of Current Business, February 1997, pp. 23–38.Google Scholar

Copyright information

© International Atlantic Economic Society 2001

Authors and Affiliations

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

Personalised recommendations