Investment and Exports This Page Intentionally Left Blank 9 U.S. and Swedish Direct Investment and Exports

The effect of foreign production by a country’s firms on the home country’s exports continues to be a puzzle after many years of con-troversy and a considerable amount of empirical research. Theoretical models of direct foreign investment typically treat the size of a market as exogenous and a company’s share of a market as a function of its firm-specific capital. The decision as to whether to produce abroad is then a matter of choosing among possible methods of serving the foreign market, including exporting from the home country, producing abroad, and licensing others to produce the firm’s product. That decision will depend on the nature of the firm’s intangible assets, on transport costs, economies or diseconomies of scale, barriers to trade and other gov-ernment regulations, on factor prices at home and in other countries