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The Economics of Foreign Direct Investment and Trade with an Application to the U.S. Food Processing Industry
Author(s) -
Gopinath Munisamy,
Pick Daniel,
Vasavada Utpal
Publication year - 1999
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1244593
Subject(s) - multinational corporation , foreign direct investment , business , production (economics) , international trade , investment (military) , corporation , international economics , economics , industrial organization , microeconomics , finance , macroeconomics , politics , political science , law
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.