Trade Liberalization, Growth, and FDI: A Structural Estimation Framework

We develop a structural framework that accounts for and decomposes the relationships between trade, physical capital accumulation, and FDI. As a byproduct, our theory delivers a FDI-gravity system. The FDI-gravity estimates are similar to the corresponding trade indexes, however, we also document some notable differences between them. A counterfactual experiment simulating the effects of trade liberalization between Canada and the EU demonstrates the capabilities of our framework.