1 International Trade and Foreign Direct Investment: A Focus on the Free Trade Area of the Americas1

Trade and foreign direct investment (FDI) are principal strategies to access foreign markets. As the world becomes increasingly interdependent, the linkages between these two strategies become increasingly important. Processed foods are the fastest growing market for U.S. agricultural exports and foreign affiliate sales have grown even faster than exports. A key question regarding U.S. competitiveness is whether FDI displaces or enhances exports? The overall objective of this research is to model the relationship between U.S. FDI and exports for processed food products in FTAA countries and to determine whether these market access strategies are substitutes or complements. Empirical results indicate a complementary relationship between FDI and exports; thus U.S. agribusinesses should use both strategies to access FTAA markets