Title
A General Equilibrium Analysis of the Interplay between Foreign Direct Investment and Trade Adjustments
Abstract
The theoretical literature on trade and foreign direct investment
(FDI) indicates that they could be either substitutes or complements.
The empirical evidence on U.S.-Japan and Asia-Pacific Economic
Cooperation (APEC) countries suggests that trade and FDI exhibit
a complementary relationship. In this paper, we employ a multi-region,
multisectoral computable general equilibrium (CGE) model that
incorporates FDI to evaluate the impact of APEC trade and investment
liberalization on economic welfare and the interplay between FDI
and trade adjustments.
The preliminary results suggest that FDI liberalization would
bring about greater benefits to most of the APEC economies than
trade liberalization. In the manufacturing sector, trade and FDI
are found to be complements in the APEC regions. In other words,
trade liberalization leads to an increase in the inward and outward
FDI stocks, and FDI liberalization leads to an increase in trade
flows of manufactures.
Hiro LEE
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059
Dominique van der MENSORUGGHE
Development Prospects Group
The World Bank