An Empirical Analysis of U.S. Foreign Direct Investment and Exports of Processed Food Industries

Abstract

This study examined the determinants of U.S. foreign direct investment (FDI) and exports of processed food. This study also examined the impact of U.S. FDI on U.S. exports on processed food. FDI and export models used for estimation in this study were based on the cost-minimizing production function. The analysis focused on ten countries for the period of 1989-2004. Four of them were Asian countries: India, Japan, South Korea, and Thailand. Six of them were European countries: Belgium, France, Germany, Italy, Spain, and the United Kingdom. The model was estimated using the two-way error component three-stage least squares (EC3SLS) method. Results from this study show that U.S. FDI and U.S. exports of processed food are complements. Major factors affecting U.S. FDI in the processing industry are GDP, GDP per capita, exchange rate, tariff rate, labor compensation cost, interest rate, and distance. Major factors affecting U.S. exports in the processed food industry are GDP, distance, and GDP from the agri-sector.