EXPORT PERFORMANCE AND THE ROLE OF FOREIGN DIRECT-INVESTMENT

We explore the relationship between the location of production and the trade performance of 11 OECD countries since 1971. The paper augments a standard export demand model, which includes relative prices, marke t size and measures of relative innovation, with indicators of both in ward and outward investment levels. Common long-run parameters are acc epted for market size, relative prices and relative patenting, but not for the direct investment effects. The sign and magnitude of the dire ct investment effects vary by country. Outward investment has a genera lly negative impact on trade shares, while inward investment has a gen erally positive one.