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OXFORD REVIEW OF ECONOMIC POLICY, VOL. 20, NO. 3, PP. 409-423
Oxford Review of Economic Policy vol. 20 no. 3 2004 © Oxford University Press and the Oxford Review of Economic Policy Limited 2004; all rights reserved.

Exporting and FDI as Alternative Strategies

Keith Head
John Ries
Sauder School of Business, University of British Columbia1

Abstract

Exports and overseas production are alternative modes for serving foreign customers. Empirical studies usually find that foreign markets are served through both modes and that countries receiving high levels of exports also host large amounts of foreign direct investment (FDI). This paper evaluates several possible ways to reconcile the facts about FDI and exports with the standard theory of multinational corporations. We argue that coexistence and correlation of FDI and exports are consistent with models where the two modes are substitutes. This substitutive relationship finds collaborative evidence in the results of several papers. Nevertheless, a significant body of evidence suggests that FDI sometimes complements exports through the mechanism of stimulating exports of intermediate goods for use by overseas affiliates.


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R. Harris and Q. C. Li
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Oxf. Econ. Pap., January 1, 2009; 61(1): 74 - 103.
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