The aggregate impact of firms' FDI strategies on the trade balances of host countries

In this paper, we suggest that the dominant motives for firms investing in Advanced Industrial Nations or Developing Countries (AINs or DCs) tend to be different, These dissimilar principal motives manifest themselves in aggregate impacts on national trade balances, Using market imperfections theory and borrowing from Root [1977], we suggest that firms generally tend to use FDI in AINs for market access and penetration, increasing host-country import levels, Firms tend to use FDI in DCs in order to gain resource advantages that can be exploited in export markets leading to increased exports and hence, trade surpluses, A contingency framework which outlines the conditions under which FDI inflows will be related to national trade surpluses and/or deficits, based on the dominant strategic motives of the investing firms, is presented and tested, Our findings suggest that the relationship between FDI inflow and trade balance is moderated by whether a country is an Advanced Industrial Nation or a Developing Country, In the Limitations and Future Research sections of the paper, readers are cautioned to view the findings as research opening rather than as definitive, Recommendations for future research are also discussed.