Investment Liberalization and International Trade

Katharine Wakelin and Mary Amiti

No 3492, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper estimates the cross-price elasticity of exports with respect to investment costs for bilateral relations between 36 countries. We show that the effect of reducing foreign direct investment costs on exports depends on country characteristics and trade costs as predicted by the Markusen (1997, 2002) model. When countries differ in relative factor endowments and trade costs are low, investment liberalization stimulates exports, whereas when countries are similar in terms of relative factor endowments and size, and trade costs are moderate to high, investment liberalization reduces exports.

Keywords: Exports; Foreign direct investment; International trade; Investment costs; Investment liberalization (search for similar items in EconPapers)
JEL-codes: F12 F14 F23 (search for similar items in EconPapers)
Date: 2002-08
New Economics Papers: this item is included in nep-ifn
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Citations: View citations in EconPapers (1)

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