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Multiproduct multinationals and reciprocal FDI dumping
By : Richard E. Baldwina, Gianmarco I.P. Ottavianob, ELSEVIER (baldwin@hei.unige.ch (R.E. Baldwin).)
Created : 2010-06-30, with 1 files
Keyword : Multiproduct, multinationals, reciprocal, FDI, dumping
Url : http://www.elsevier.nl / locate /econbase
Global patterns of FDI and trade are remarkably similar, yet mainstay theory has them as
substitutes.We posit a model where multiproduct, final-goods firms simultaneously engage
in intraindustry FDI and intraindustry trade. The logic behind this two-way FDI is
analogous to that of two-way trade in the Brander–Krugman reciprocal-dumping model.
Namely, multiproduct firms use trade costs to reduce inter-variety competition by placing
production of some varieties abroad. Since the varieties are differentiated, all varieties are
sold in all markets. Thus while FDI displaces some exports, it also creates trade via reverse
imports. This naturally leads to parallelism in the trade and FDI patterns.
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