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CIAO DATE: 03/01
Journal of International Relations and Development
Vol. 3, No 2 (June 2000)
Articles
The article reviews theoretical approaches and empirical results of the impact of Foreign Direct Investment (FDI) on trade. Conventional trade theory suggests either trade creating or trade replacing effects. Resource-based, local market-oriented and internationally integrated investments are distinguished, with particular reference to affiliate learning and technological upgrading. The article concludes that with the growth of international trade controlled by Multinational Companies (MNCs) and of internationally integrated intra-MNC networks there is a steadily increasing complementarity between FDI and international trade.
With the aim of providing a foundation for developing a hypothesis on the determinants of and factors relating to the export propensity of foreign subsidiaries, the article discusses theoretical considerations and empirical evidence on foreign direct investment and trade and specifically on foreign subsidiaries’ export propensity, including new trends towards integrated international production. In identifying the determinants of and factors relating to foreign subsidiaries’ export propensity, the article broadly distinguishes between investing firm, industry, foreign subsidiary, home country and host country variables. The article provides a number of propositions for potential empirical research.
The article analyses the foreign trade structures of Hungary and Spain in the nineties with a special focus on their technological composition. This composition shows a strong increase in high-tech goods together with a decrease in low-tech goods in Hungary. Changes in Spanish foreign trade have been less drastic; the share of technology groups remained similar, with a high concentration on the motor vehicle branch. These phenomena are confirmed by the calculation of the specialisation and intra-industry trade indices, applying a highly detailed database. In order to examine the process of upgrading product quality, intra-industry trade is separated into horizontal and vertical types using the unit-value calculation method. According to the results, different specialisation patterns seem to have formed in Spanish and Hungarian foreign trade. However, intra-industry trade increased considerably in both countries, which has taken place together with the upgrading of product quality. Based on the high concentration of foreign trade in certain products and companies, it can be stated that in the case of Hungary these phenomena are due to the effects of foreign direct investment. In the case of Spain, these effects are much less apparent.
This article applies the results of a dynamic panel study of intra-European trade and foreign direct investment in examining the issue of Central and Eastern European Countries integrating into the European Union. The merit of using a dynamic perspective is shown to be its capacity to encompass not only the long-run effects of shocks but also the speed of adjustment. The latter cannot be derived from cross-section studies, but is useful particularly when potential is being projected.
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