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Investment Effects of Preferential Trade Agreements: Quality Matters

Author

Listed:
  • Taganov, B.

    (Russian Presidential Academy of National Economy and Public Administration, Moscow, Russia)

  • Idrisov, G.

    (Russian Presidential Academy of National Economy and Public Administration, Moscow, Russia
    Gaidar Institute for Economic Policy, Moscow, Russia)

Abstract

We develop a theoretical model of international capital movement in form of FDI. Our theoretical model describes non-linear impact of heterogeneous preferential trade agreements (PTAs) on FDI. In order to quantify PTAs heterogeneity we develop a methodology of PTAs classification. Using the methodology, we quantified a quality of more than 200 PTAs (out of 380 existing globally). Our model predicts that impact of PTA on FDI will depend on observed quality of PTA while marginal investment effect of PTAs will decrease with PTAs' quality improvement. Empirically, we show that use of simple dummy for PTAs without taking into account PTAs heterogeneity and the non-linear effects of PTA on FDI overestimate the investment effects of PTAs up to 100%. Bilateral PTAs within CIS insignificantly affects FDI between countries - maximum investment effects of such agreements are estimated at 19%. Multilateral PTAs have a significant investment effects: FDI between signatories of multilateral PTAs rose up to 71%.

Suggested Citation

  • Taganov, B. & Idrisov, G., 2016. "Investment Effects of Preferential Trade Agreements: Quality Matters," Journal of the New Economic Association, New Economic Association, vol. 31(3), pages 40-65.
    • Handle: RePEc:nea:journl:y:2016:i:31:p:40-65
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    References listed on IDEAS

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    More about this item

    Keywords

    foreign direct investment; preferential trade agreements; estimation of investment effects of integration; mathematical modelling;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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