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Reverse importing and asymmetric trade and FDI: a networks explanation

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  • Greaney, Theresa M.

Abstract

This paper considers the impact of business and social networks on international trade and foreign direct investment (FDI). I propose that differences in the strength of network effects across countries can produce asymmetric trade and investment flows that may lead to trade friction. This proposition is examined using a model of multi-product producers of a differentiated product. A firm from a country with strong network effects has a cost advantage in selling to buyers from its own country. This advantage results in lower inward FDI, lower total imports but larger volumes of reverse imports (i.e., imports from overseas affiliates of that country’s own firms) into the country with strong network effects. The model’s predictions match observed asymmetric trade and investment flows that sometimes lead to US-Japan trade friction in industries such as automobiles.
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  • Greaney, Theresa M., 2003. "Reverse importing and asymmetric trade and FDI: a networks explanation," Journal of International Economics, Elsevier, vol. 61(2), pages 453-465, December.
    • Handle: RePEc:eee:inecon:v:61:y:2003:i:2:p:453-465
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    1. Shuhei Nishitateno, 2015. "Network Effects on Trade in Intermediate Goods: Evidence from the Automobile Industry," The Japanese Economic Review, Japanese Economic Association, vol. 66(3), pages 354-370, September.
    2. Greaney, Theresa M., 2003. "Reverse importing and asymmetric trade and FDI: a networks explanation," Journal of International Economics, Elsevier, vol. 61(2), pages 453-465, December.
    3. Jinjarak, Yothin, 2007. "Foreign direct investment and macroeconomic risk," Journal of Comparative Economics, Elsevier, vol. 35(3), pages 509-519, September.
    4. Mathew, Anuj Joshua & Mukherjee, Arijit, 2014. "Intellectual property rights, southern innovation and foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 128-137.
    5. Arribas, Iván & Pérez, Francisco & Tortosa-Ausina, Emili, 2008. "On the Dynamics of Globalization," MPRA Paper 16007, University Library of Munich, Germany, revised 2008.
    6. Shuhei Nishitateno, 2012. "Global Production Sharing in the Japanese Automobile Industry: A Comparative Analysis," Departmental Working Papers 2012-02, The Australian National University, Arndt-Corden Department of Economics.
    7. Arribas, Iván & Pérez, Francisco & Tortosa-Ausina, Emili, 2006. "Measuring International Economic Integration: Theory and Evidence of Globalization," MPRA Paper 16010, University Library of Munich, Germany, revised 2006.
    8. Keith Head & John Ries & Barbara J. Spencer, 2004. "Vertical Networks and US Auto Parts Exports: Is Japan Different?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(1), pages 37-67, March.
    9. Bruce Blonigen & Rossitza B. Wooster, 2003. "CEO Turnover and Foreign Market Participation," NBER Working Papers 9527, National Bureau of Economic Research, Inc.
    10. Jota Ishikawa & Yoshimasa Komoriya, 2009. "Trade costs, wage rates, technologies, and reverse imports," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(2), pages 615-638, May.
    11. Laixun Zhao & Yuqing Xing, 2003. "Currency Devaluation and Global Outsourcing," Working Papers EMS_2003_04, Research Institute, International University of Japan.
    12. Xing, Yuqing & Zhao, Laixun, 2008. "Reverse imports, foreign direct investment and exchange rates," Japan and the World Economy, Elsevier, vol. 20(2), pages 275-289, March.
    13. Bouwe Dijkstra & Anuj Mathew & Arijit Mukherjee, 2015. "Privatization in the presence of foreign competition and strategic policies," Journal of Economics, Springer, vol. 114(3), pages 271-290, April.
    14. Beladi, Hamid & Mukherjee, Arijit, 2012. "Footloose foreign firm and profitable domestic merger," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 186-194.
    15. Belderbos, René & Wakasugi, Ryuhei & Zou, Jianglei, 2012. "Business groups, foreign direct investment, and capital goods trade: The import behavior of Japanese affiliates," Journal of the Japanese and International Economies, Elsevier, vol. 26(2), pages 187-200.
    16. Arijit Mukherjee, 2008. "Unionised Labour Market and Strategic Production Decision of a Multinational," Economic Journal, Royal Economic Society, vol. 118(532), pages 1621-1639, October.
    17. Kyoji Fukao; Toshihiro Okubo, 2004. "Why Has the Border Effect in the Japanese Market Declined?," IHEID Working Papers 12-2004, Economics Section, The Graduate Institute of International Studies.
    18. Greaney, Theresa M., 2005. "Measuring network effects on trade: Are Japanese affiliates distinctive?," Journal of the Japanese and International Economies, Elsevier, vol. 19(2), pages 194-214, June.
    19. Jota Ishikawa & Yoshimasa Komoriya, 2010. "Stay Or Leave? Choice Of Plant Location With Cost Heterogeneity," The Japanese Economic Review, Japanese Economic Association, vol. 61(1), pages 97-115, March.
    20. Greaney, Theresa M., 2009. "Measuring network effects on trade: A reexamination," Japan and the World Economy, Elsevier, vol. 21(3), pages 219-225, August.
    21. Mukherjee, Arijit & Suetrong, Kullapat, 2012. "Trade cost reduction and foreign direct investment," Economic Modelling, Elsevier, vol. 29(5), pages 1938-1945.
    22. Toshihiro Okubo, 2004. "Intra-industry Trade and Production Networks," IHEID Working Papers 13-2004, Economics Section, The Graduate Institute of International Studies.
    23. George J. Georgopoulos, 2008. "Cross‐border mergers and acquisitions: does the exchange rate matter? Some evidence for Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(2), pages 450-474, May.
    24. Arribas, Iván & Pérez, Francisco & Tortosa-Ausina, Emili, 2009. "Measuring Globalization of International Trade: Theory and Evidence," World Development, Elsevier, vol. 37(1), pages 127-145, January.
    25. Mukherjee, Arijit, 2013. "Endogenous domestic market structure and the effects of a trade cost reduction in a unionised industry," Economic Modelling, Elsevier, vol. 32(C), pages 30-33.

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    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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