Bilateral FDI and Canadian Export Activity

This study examines how Canadian exports to a specific trading partner are influenced by outward and inward direct investment flows to/from that country. A gravity-type empirical model guides a dynamic panel analysis which utilizes OECD country-level data from 1989-2007. Besides refuting the contention that outward FDI displaces exports, the findings also imply a strong role for intra-firm based export growth in response to inward FDI. The analysis is enriched by explicitly accounting for the dominant position of the U.S. within the context of Canada’s overall trade and investment flows.