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Outward FDI from a Free Trade Area: the Small Open Economy Case

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  • Yu-Ter Wang

    (Department of Economics, Ming Chuan University)

Abstract

In a simple three-country model where two countries sign a free trade agreement eliminating restrictions on trade and investment between them, this paper shows that any benefits accruing to the investing country from engaging in outward FDI will depend on the difference between the net return from investing in the third country and the equilibrium return on investment between the two signatories, as well as the direction of the initial capital flow between the signatories. Furthermore, the spillover effect d by the outward FDI may benefit the other signatory that initially owns some of the capital stock of its counterpart.

Suggested Citation

  • Yu-Ter Wang, 2008. "Outward FDI from a Free Trade Area: the Small Open Economy Case," Economics Bulletin, AccessEcon, vol. 6(47), pages 1-7.
    • Handle: RePEc:ebl:ecbull:eb-08f10027
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    References listed on IDEAS

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    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

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