 Reverse Importing and Asymmetric Trade and FDI: A Networks ExplanationNo 200215, Working Papers from University of Hawaii at Manoa, Department of Economics Abstract: This paper considers the impact of business and social networks on international trade and foreign direct investment (FDI). I propose that differences in the strength of network effects across countries can produce asymmetric trade and investment flows that may lead to trade friction. This proposition is examined using a model of multi-product producers of a differentiated product. A firm from a country with strong network effects has a cost advantage in selling to buyers from its own country. This advantage results in lower inward FDI, lower total imports but larger volumes of reverse imports (i.e., imports from overseas affiliates of that country’s own firms) into the country with strong network effects. The model’s predictions match observed asymmetric trade and investment flows that sometimes lead to US-Japan trade friction in industries such as automobiles. Keywords: Multinational corporations; Intra-industry Trade; Foreign Direct Investment; Reverse Imports; Networks (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hai:wpaper:200215 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in Working Papers from University of Hawaii at Manoa, Department of Economics Contact information at EDIRC. |
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