Determinants of Foreign Direct Investment in the Food- Processing Industry: A Comparative Analysis of Developed and Developing Economies

This paper analyzes the determinants of foreign direct investments by the U.S. food-processing industry in developed and developing countries. We find that market size, per-capita income, and trade openness significantly affect U.S. food-processing firms ’ decisions to invest abroad, but their influence differs between developed and developing coun-tries. Economic development is positively associated with FDI in developing countries but negatively associated in developed countries. Market size is a major determinant of FDI only in developed economies. Trade openness seems to be important for sales by U.S. foreign affiliates in both developed and developing countries and for exports to de-veloped country markets. In recent years the global market for processed food has been shifting towards developing countries. While several studies have examined the deter-minants of the food-processing industry’s foreign direct investment (FDI) in developed countries (Gopinath, Pick, and Vasavada 1999; Bolling, Neff, and Handy 1998), little is known about these determinants in developing countries. This stud