Working Paper: CEPR ID: DP1851
Authors: Richard E. Baldwin; Gianmarco I.P. Ottaviano
Abstract: The global pattern of foreign direct investment (FDI) is quite similar to the world trade pattern. In particular, intra-industry FDI between rich nations is almost as pervasive as intra-industry trade among rich nations. In the ?standard? multinational corporation (MNC) model (of Markusen, Venables, Brainard, and others), FDI is driven by a trade-off between proximity and scale, so firms typically supply the foreign market via exports or via FDI. The close correlation of two-way trade and investment flows is therefore difficult to explain with the standard model. We propose a model of multiproduct MNCs where firms simultaneously engage in intra-industry FDI and intra-industry trade.
Keywords: multinational corporations; international trade; international investment; foreign direct investment
JEL Codes: F12; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreign direct investment (FDI) (F23) | trade (F19) |
| trade (F19) | foreign direct investment (FDI) (F23) |
| lower barriers to FDI (F23) | foreign direct investment (FDI) (F23) |
| multiproduct MNCs (F23) | trade and foreign direct investment (FDI) (F23) |
| imperfect competition (L13) | reciprocal FDI dumping (F23) |
| reciprocal FDI dumping (F23) | simultaneous occurrence of trade and FDI (F23) |
| existence of FDI (F23) | segmentation of markets (D49) |