DP1851 Multiproduct Multinationals and Reciprocal FDI Dumping

Author(s):	Richard Baldwin, Gianmarco Ottaviano
Publication Date:	March 1998
Keyword(s):	Foreign Direct Investment, International Investment, International Trade, Multinational Corporations
JEL(s):	F12, F23
Programme Areas:	International Trade and Regional Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=1851

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.