Foreign Direct Investment and Trade in the U.S. Food Processing Industry: Complements or Substitutes?

A multinational enterprise (MNE) seeking to maximize its profits must decide whether to emphasize production within its home country-based facilities or at its affiliates abroad. We examine what determines the choice between exporting and FDI by the U.S. food processing industry. We also analyze whether trade and FDI are complements or substitutes, i.e., whether foreign affiliate sales have positive or negative impacts on exports. Results indicate that U.S. exports and affiliate sales (due to outward FDI) have both been increasing but sales by foreign affiliates far exceed exports. Also, results show that U.S. exports and FDI are complements, in the sense that exports have a positive effect on FDI and vice versa, FDI has a positive effect on exports. Furthermore, a nation’s GNP per capita was found to be an important factor in determining sales by foreign affiliates. Finally, the results suggest that owners of capital in the processed food industry stand to gain more than the workforce because the former disproportionately benefit from their returns on investment in the long run