The purpose of this study is to examine the relationship between foreign direct investment (FDI) and trade in a bilateral context, that is, home (source) country's exports and FDI to a host (recipient) country are analyzed using a gravity-model approach. The FDI-trade relationship has been a centerpiece of the international-economics literature over the past decade. The home country's primary concern here is on the possible loss of employment due to more FDI than trade (Lipsey). Of late, there have been concerns on knowledge spillovers and the erosion of technological leadership (market failure) due to capital outflows. For a host country, the focus is on the effects of FDI on economic growth and development and technology transfer. Prior theoretical studies have used mostly imperfect-competition models to identify the FDI-trade relationship (Helpman and Krugman; Markusen and Venables). A majority of the empirical studies has used regression techniques with one-period lagged trade and FDI as an argument in current trade or FDI equations (Barrell and Pain; Gopinath, Pick, and Vasavada; Egger). Aggregate (firmlevel) data and industry (product-specific) data have been used in many of these studies (Blonigen; Lipsey and Ramstetter). Some have used cointegration methods to infer on the long-run association between trade and FDI (Pfaffermayr). However, few FDI-trade