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

James Markusen and Keith Maskus

Chapter 11 in Frontiers of Research in Intra-Industry Trade, 2002, pp 199-219 from Palgrave Macmillan

Abstract: Abstract The theory of international trade has long been relatively disjoint from the theory of foreign direct investment, the latter being viewed traditionally as part of the macroeconomic theory of capital flows. The foreign investment ‘regime’ (that is, restricted, liberal) could, of course, affect trade in this view, but only through changing the host country’s capital stock. This conceptual approach to direct investment began to break down in the 1980s as researchers noted that direct investment seemed to relate more to firm-specific assets than to measures of aggregate capital. Firms in the developed countries penetrated each other’s markets with intra-industry direct investment, and the directions of investment did not seem to bear any particular relationship to interest rates or other measures of returns to capital. Other studies refined the evidence by showing that direct investment was related closely to know-ledge-based and other intangible assets, and not to physical capital intensity (Eaton and Tamura, 1994; Brainard, 1997; Ekholm, 1998; Carr, et al., 2001; Markusen and Maskus, 2001). For recent surveys of empirical findings, see Markusen (1995, 1998) and Caves (1996).

Keywords: Foreign Direct Investment; Gross Domestic Product; Trade Cost; Multinational Firm; Parent Firm (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1057/9780230285989_11

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