Complementarity of Trade and Direct Investment
Complementarity of Trade and Direct Investment
In spite of the increase in direct investments to produce goods for re-import, firms usually export substantially to their foreign facilities; thus FDI is not usually a substitute for exports.8 Many of these exports would not occur if overseas investments did not exist. In these cases, factor movements stimulate rather than substitute for trade. One reason for this phenomenon is that domestic operating units may ship materials and components to their foreign facilities for use in a finished product. For example, the Mexican government has required that automobiles sold in Mexico be assembled there. Chrysler therefore put an investment in Mexico to which parts are shipped from the United States. Yet the quantity of parts from the United States has varied as Mexico has changed requirements for local parts.9 The foreign subsidiaries or affiliates also may buy capital equipment or supplies from home-country firms because of their confidence in performance and delivery or to achieve maximum worldwide uniformity. A foreign facility may produce part of the product line while serving as sales agent for exports of its parent's other products. Bridgestone, for instance, continued to export its automobile tires from Japan for several years while using the sales force from its U.S. truck-tire manufacturing operations to handle the imports.
In spite of the increase in direct investments to produce goods for re-import, firms usually export substantially to their foreign facilities; thus FDI is not usually a substitute for exports.8 Many of these exports would not occur if overseas investments did not exist. In these cases, factor movements stimulate rather than substitute for trade. One reason for this phenomenon is that domestic operating units may ship materials and components to their foreign facilities for use in a finished product. For example, the Mexican government has required that automobiles sold in Mexico be assembled there. Chrysler therefore put an investment in Mexico to which parts are shipped from the United States. Yet the quantity of parts from the United States has varied as Mexico has changed requirements for local parts.9 The foreign subsidiaries or affiliates also may buy capital equipment or supplies from home-country firms because of their confidence in performance and delivery or to achieve maximum worldwide uniformity. A foreign facility may produce part of the product line while serving as sales agent for exports of its parent's other products. Bridgestone, for instance, continued to export its automobile tires from Japan for several years while using the sales force from its U.S. truck-tire manufacturing operations to handle the imports.
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