Discussion paper

DP1851 Multiproduct Multinationals and Reciprocal FDI Dumping

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.

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Citation

Baldwin, R and G Ottaviano (1998), ‘DP1851 Multiproduct Multinationals and Reciprocal FDI Dumping‘, CEPR Discussion Paper No. 1851. CEPR Press, Paris & London. https://cepr.org/publications/dp1851