International Trade and Factor Mobility:An Empirical Investigation

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Staff Reports

International Trade and Factor Mobility:An Empirical Investigation

June 1999Number 81

JEL classification: F31, F3, F4

Authors: Linda S. Goldberg and Michael W. Klein

Foreign Direct Investment (FDI) has been growing rapidly, at a pace far exceeding the growth in international trade. Thus, a full understanding of the relationship between trade in goods and FDI is important for obtaining a complete picture of the extent and sources of international linkages. We investigate whether FDI serves as a complement to trade or a substitute for trade based on the effects identified by the Rybczynski theorem whereby an increase in a factor of production used intensively in one sector affects production both in that sector and in other sectors. Using detailed data on bilateral capital and trade flows between the United States and individual Latin American countries, we examine the linkages between FDI into particular sectors of Latin American economies and the net exports of those and other manufacturing sectors. We find that FDI from the United States can lead to significant, and varied, shifts in the composition of activity in many Latin American countries and across many manufacturing industries.

Available only in PDF PDF

32 pages / 169 kb

For a published version of this report, see Linda Goldberg and Michael Klein, "International Trade and Factor Mobility: An Empirical Investigation," in Guillermo Calvo, Rudiger Dornbusch, and Maurice Obstfeld, eds., Money, Capital Mobility and Trade: Essays in Honor of Robert Mundell. Cambridge, Mass.: MIT Press (2001): 273-302.

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