U.S. PROCESSED FOOD EXPORTS AND FOREIGN DIRECT INVESTMENT IN THE WESTERN HEMISPHERE

U.S. exports of processed food products and sales by foreign affiliates of U.S. companies in the industry have been growing rapidly. Canada and Mexico are the United States' two major trading partners in the Western Hemisphere, while small quantities of processed food products are exported to a number of other countries in the hemisphere. U.S. Foreign Direct Investment (FDI), like exports, is also largest in Canada and Mexico, but there is also significant FDI in the processed food industry in South American countries such as Brazil and Argentina. U.S. FDI, measured as sales by foreign affiliates, is significantly greater than U.S. processed food exports. The relationship between FDI and trade is subject to much debate and analysis. An econometric model is developed and estimated to determine the factors affecting U.S. processed food exports and sales by affiliates in eight Western Hemisphere countries, as well as the relationship between exports and FDI. Results suggest that U.S. FDI and exports are complements. U.S. exports are also positively influenced by real GDP in the importing country and are negatively influenced by tariffs. There are also large regional differences in U.S. exports after economic variables are accounted for. U.S. exports are higher to Canada and, to a lesser extent, Mexico and are lower to Brazil and Argentina. U.S. FDI is positively influenced by real GDP in the host country, which indicates that U.S. firms invest in countries with greater market opportunities. FDI is negatively influenced by exchange rate volatility, which indicates that U.S. firms try to avoid unstable economies. Free trade agreements with Canada and Mexico also have significant positive effects on U.S. FDI. Results indicate that taking advantage of lower labor costs is not a motivating factor for U.S. firms, and that the real exchange rate does not have a significant effect on either FDI or exports.