NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Trade and Investment in the Global Economy

James E. Anderson, Mario Larch, Yoto V. Yotov

NBER Working Paper No. 23757
Issued in August 2017
NBER Program(s):International Trade and Investment

We develop a dynamic multi-country trade model with foreign direct investment (FDI) in the form of non-rival technology capital. The model nests structural gravity sub-systems for FDI and trade, with accumulation/decumulation of phyisical and technology capital in transition to the steady state. The empirical importance of the FDI channel is demonstrated comparing actual aggregate cross-section data for 89 countries in 2011 to a hypothetical world without FDI. The gains from FDI amount to 9\% of world's welfare and to 11% of world's trade, unevenly distributed among winners and losers. Net exports of FDI substitute for export trade in the results.

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Document Object Identifier (DOI): 10.3386/w23757

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