Journal Article

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

Munisamy Gopinath, Daniel Pick and Utpal Vasavada

in American Journal of Agricultural Economics

Published on behalf of Agricultural and Applied Economics Association

Volume 81, issue 2, pages 442-452
Published in print May 1999 | ISSN: 0002-9092
Published online May 1999 | e-ISSN: 1467-8276 | DOI: http://dx.doi.org/10.2307/1244593
The Economics of Foreign Direct Investment and Trade with an Application to the U.S. Food Processing Industry

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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.

Keywords: export; foreign affiliate sales; foreign direct investment; multinational corporation; F210; F230; L660

Journal Article.  0 words. 

Subjects: Manufacturing ; International Factor Movements and International Business

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