A Unified Approach to Intra-Industry Trade and Direct Foreign Investment

James R. Markusen () and Keith E. Maskus ()

No 8335, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Economic interactions among the high-income developed countries are characterized by high degrees of both intra-industry trade and intra-industry affiliate production and sales. Similar high-income countries both heavily trade with and invest into each other. The purpose of this paper is to show how the theory of direct investment can now be integrated with the theory of international trade in goods, and to show how the two combine to determine the pattern of trade and foreign affiliate production. Empirical estimation gives good support to the predictions of the theory for intra-industry affiliate sales, with somewhat weaker results for intra-industry trade. Results confirm that the intra-industry affiliate sales index rises relative to the intra-industry trade index as countries become richer and more similar in size and in relative endowments.

JEL-codes: F13 F23 (search for similar items in EconPapers)
Date: 2001-06
Note: ITI
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