Journal article written by 1996 Abe Fellow Theresa Greaney based on her project “An Analysis of Japan’s Changing Import Behavior: Similarities and Differences with Other Developed Countries.”
This paper considers the impact of business and social networks on international trade and FDI. I propose that differences in the strength of network effects across countries can produce asymmetric trade and investment flows that may lead to trade friction. A firm from a country with strong network effects has a cost advantage in selling to buyers from its own country. This advantage results in lower inward FDI, lower total imports but larger volumes of reverse imports into the country with strong network effects. The model’s predictions match observed asymmetric trade and investment flows that sometimes lead to US–Japan trade friction.