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International Trade and Foreign Direct Investment: Substitutes or Complements?

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  • Marchant, Mary A.
  • Cornell, Dyana N.
  • Koo, Won

Abstract

International agricultural trade has evolved over time. Processed foods and developing countries have become major growth markets for U.S. agricultural exports, and foreign direct investment (FDI) has become even more important than exports as a means of accessing foreign markets. The critical question is whether FDI is a substitute for or a complement of exports. This research builds upon an existing theoretical FDI model and contributes to the literature through the development of a simultaneous equation system for FDI and exports, which is estimated using two-stage least squares. Empirical analyses were used to examine the relationship between U.S. FDI and exports of processed foods into East Asian countries-China, Japan, Singapore, South Korea, and Taiwan-from 1989 to 1998. The results indicated a complementary relationship between FDI and exports. Additionally, these results indicated that interest rates, exchange rates, gross domestic product (GDP), and compensation rates are important variables that influence U.S. FDI in East Asian countries, while GDP, exchange rates, and export prices are important export determinants.

Suggested Citation

  • Marchant, Mary A. & Cornell, Dyana N. & Koo, Won, 2002. "International Trade and Foreign Direct Investment: Substitutes or Complements?," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 34(2), pages 289-302, August.
    • Handle: RePEc:cup:jagaec:v:34:y:2002:i:02:p:289-302_00
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    References listed on IDEAS

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    Cited by:

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    6. Karl Aiginger & Stefan Ederer & Jakob Prammer & Susanne Bärenthaler-Sieber, 2010. "Österreichs außenwirtschaftliche Beziehungen zur Schwarzmeerregion und deren wirtschaftliche Perspektiven," WIFO Studies, WIFO, number 39891, April.
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    9. Bolling, H. Christine & Shane, Mathew & Roe, Terry L., 2007. "Exchange Rates and U.S. Foreign Direct Investment in the Global Processed Food Industry," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 36(2), pages 1-9, October.
    10. CUYVERS, Ludo & PLASMANS, Joseph & SOENG, Reth & VAN DEN BULCKE, Daniël, 2008. "Determinants of foreign direct investment in Cambodia: Country-specific factor differentials," Working Papers 2008003, University of Antwerp, Faculty of Business and Economics.
    11. Furtan, William Hartley & Holzman, J.J., 2004. "The Effect of FDI on Agriculture and Food Trade: An Empirical Analysis 1987-2001," Agriculture and Rural Working Paper Series 28037, Statistics Canada.
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    More about this item

    JEL classification:

    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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