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The Aggregate Impact of Firms' FDI Strategies on the Trade Balances of Host Countries

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  • Lance Eliot Brouthers

    (University of Texas at San Antonio)

  • Steve Werner

    (University of Houston)

  • Timothy J Wilkinson

    (Boise State University)

Abstract

In this paper, we suggest that the dominant motives for firms investing in Advanced Industrial Nations or Developing Countries (AINs or DCs) tend to be different. These dissimilar principal motives manifest themselves in aggregate impacts on national trade balances. Using market imperfections theory and borrowing from Root [1977], we suggest that firms generally tend to use FDI in AINs for market access and penetration, increasing host-country import levels. Firms tend to use FDI in DCs in order to gain resource advantages that can be exploited in export markets leading to increased exports and hence, trade surpluses. A contingency framework which outlines the conditions under which FDI inflows will be related to national trade surpluses and/or deficits, based on the dominant strategic motives of the investing firms, is presented and tested. Our findings suggest that the relationship between FDI inflow and trade balance is moderated by whether a country is an Advanced Industrial Nation or a Developing Country. In the Limitations and Future Research sections of the paper, readers are cautioned to view the findings as research opening rather than as definitive. Recommendations for future research are also discussed.© 1996 JIBS. Journal of International Business Studies (1996) 27, 359–373

Suggested Citation

  • Lance Eliot Brouthers & Steve Werner & Timothy J Wilkinson, 1996. "The Aggregate Impact of Firms' FDI Strategies on the Trade Balances of Host Countries," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(2), pages 359-373, June.
    • Handle: RePEc:pal:jintbs:v:27:y:1996:i:2:p:359-373
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    Cited by:

    1. Mauricio Zelaya & Ayse Yüce, 2014. "Foreign Direct Investment Decisions into China and India," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(3), pages 300-316, March.
    2. Matija Rojec & Jože P. Damijan & Boris Majcen, 2002. "Foreign ownership and export propensity: the slovenian experience," Prague Economic Papers, Prague University of Economics and Business, vol. 2002(4), pages 339-355.
    3. Nathalia Rios Ballesteros & Thomas Goda, 2017. "Natural resource-seeking FDI inflows and current account deficits in commodity-producing developing economies," Documentos de Trabajo de Valor Público 15298, Universidad EAFIT.
    4. Zhang, Jianhong & Jacobs, Jan & Witteloostuijn, Arjen van, 2004. "Multinational enterprises, foreign direct investment and trade in China : A cointegration and Granger-causality approach," CCSO Working Papers 200413, University of Groningen, CCSO Centre for Economic Research.
    5. Gil, Adrian & Nakos, George & Brouthers, Lance Eliot & Brouthers, Keith D., 2006. "Country-specific strategy and new venture formation in Central and East Europe," International Business Review, Elsevier, vol. 15(1), pages 1-13, February.
    6. Ele Reiljan, 2001. "Determinants of foreign direct investment inflows in Estonia," University of Tartu - Faculty of Economics and Business Administration, in: Foreign Direct Investments in the Estonian Economy, volume 9, chapter 2, pages 31-90, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    7. Majocchi, Antonio & Presutti, Manuela, 2009. "Industrial clusters, entrepreneurial culture and the social environment: The effects on FDI distribution," International Business Review, Elsevier, vol. 18(1), pages 76-88, February.
    8. Kashlak, Roger, 1998. "Establishing financial targets for joint ventures in emerging countries: A conceptual model," Journal of International Management, Elsevier, vol. 4(3), pages 241-258, November.
    9. Radovan Kastratović, 2020. "The impact of foreign direct investment on host country exports: A meta‐analysis," The World Economy, Wiley Blackwell, vol. 43(12), pages 3142-3183, December.
    10. Kairi Andresson & Janno Reiljan & Ele Reiljan, 2001. "Attractiveness of Central and Eastern European Countries for Foreign Direct Investment in the Context of European Integration: The Case of Estonia," ERSA conference papers ersa01p35, European Regional Science Association.
    11. repec:dgr:rugccs:200413 is not listed on IDEAS

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