Recent Developments on the Links between Foreign Direct Investment and Trade

This paper outlines recent themes in the literature on foreign direct investment with particular reference to the links between foreign investment and trade. A discussion of the research into the recent surge of foreign direct investment is also presented. The paper emphasises the need for appropriate data to test recent theoretical developments with special attention paid to the aggregation of the data in order to distinguish between vertical and horizontal foreign direct investment and, at the product level, to distinguish between trade in final and intermediate goods. Moreover, the country coverage of empirical studies needs to be extended, in particular to include FDI from European Union countries.