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Effects of regional integration on FDI: An empirical approach

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Author Info

  • Kreinin, Mordechai E.
  • Plummer, Michael G.

Abstract

This study uses an augmented gravity model to capture the effect of regional economic integration on Foreign Direct Investment (FDI) flows in the cases of the EU, NAFTA, MERCOSUR, and ASEAN. Three important conclusions emerge: (i) regional integration has had a positive and significant effect on FDI, which is a combination of investment creation and diversion; (ii) investment diversion does occur in a significant number of cases, and hence it is a legitimate cause for concern, especially among developing countries that are not part of a regional grouping with at least one developed country; and (iii) FDI acts as a substitute for trade in a significant number of cases, although in some cases, it complements trade.

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File URL: http://www.sciencedirect.com/science/article/B6W53-4TCYCGM-4/2/a2f7e42143432b940497d8e75d23f290
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Bibliographic Info

Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 19 (2008)
Issue (Month): 5-6 ()
Pages: 447-454

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Handle: RePEc:eee:asieco:v:19:y:2008:i:5-6:p:447-454

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Web page: http://www.elsevier.com/locate/asieco

Related research

Keywords: Foreign investment Trade;

References

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  1. Baldwin, Richard & Seghezza, Elena, 1996. "Trade-induced Investment-led Growth," CEPR Discussion Papers 1420, C.E.P.R. Discussion Papers.
  2. Richard E. Baldwin & Elena Seghezza, 1996. "Testing for Trade-Induced Investment-Led Growth," NBER Working Papers 5416, National Bureau of Economic Research, Inc.
  3. Caroline L. Freund & John McLaren, 1999. "On the dynamics of trade diversion: evidence from four trade blocs," International Finance Discussion Papers 637, Board of Governors of the Federal Reserve System (U.S.).
  4. John H. Dunning & Peter Robson, 1987. "Multinational Corporate Integration and Regional Economic Integration," Journal of Common Market Studies, Wiley Blackwell, vol. 26(2), pages 103-125, December.
  5. Magnus Blomstrom & Ari Kokko, 1997. "Regional Integration and Foreign Direct Investment," NBER Working Papers 6019, National Bureau of Economic Research, Inc.
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Cited by:
  1. Bassem Kahouli & Anis Omri & Anissa Chaibi, 2014. "Environmental Regulations, Trade, and Foreign Direct Investment: Evidence from Gravity Equations," Working Papers 2014-189, Department of Research, Ipag Business School.
  2. Cuyvers, Ludo & Soeng, Reth & Plasmans, Joseph & Van Den Bulcke, Daniel, 2011. "Determinants of foreign direct investment in Cambodia," Journal of Asian Economics, Elsevier, vol. 22(3), pages 222-234, June.
  3. Sudsawasd, Sasatra, 2010. "An empirical assessment of the relationship between competition policy and investment," Journal of Asian Economics, Elsevier, vol. 21(5), pages 466-475, October.

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