The relationship between foreign direct investment (FDI) and international trade is examined with specific reference to US FDI in the UK. Four complementary hypotheses are tested on a cross-section of UK industries. There is evidence of US FDI being located in UK industries which have a revealed comparative advantage and that large market size effects are important. On the other hand, little evidence was found for the protection jumping and industrial concentration hypotheses.
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Milner et al. (1996) studied this question.
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