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Regional economic integration and the location of multinational enterprises

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  • Carlo Altomonte

    ()
    (Universita' Bocconi and KU-Leuven)

Abstract

A theoretical model of international location choice is analyzed in a context of regional economic integration in which, consistently with the most recent evidence, countries conclude multilateral free trade agreements. Controlling for individual country and industry characteristics, it is found that in such a setup both vertical and horizontal multinational firms benefit from positive profit opportunities, with the interested region experiencing a parallel evolution of trade and FDI flows. After providing some empirical evidence of this finding, the model is tested through a probit panel estimation of FDI determinants in Central and Eastern Europe over the 1990-1998 period.

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File URL: ftp://ftp.unibocconi.it/pub/RePEc/cri/papers/WP152Altomonte.pdf
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Bibliographic Info

Paper provided by KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy in its series KITeS Working Papers with number 152.

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Length: 30 pages
Date of creation: Jan 2004
Date of revision: Jan 2004
Handle: RePEc:cri:cespri:wp152

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Keywords: economic integration; FDI.;

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References

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  1. David L. Carr & James R. Markusen & Keith E. Maskus, 1998. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," NBER Working Papers 6773, National Bureau of Economic Research, Inc.
  2. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
  3. Massimo Motta & George Norman, 1993. "Does economic integration cause foreign direct investment?," Economics Working Papers 28, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December.
  5. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
  6. Hanson, G.H., 1999. "`Market Potential, Increasing Returns, and Geographic Concentration," Working Papers 439, Research Seminar in International Economics, University of Michigan.
  7. Ludema, Rodney D., 2002. "Increasing returns, multinationals and geography of preferential trade agreements," Journal of International Economics, Elsevier, vol. 56(2), pages 329-358, March.
  8. Richard E. Baldwin & Gianmarco I. P. Ottaviano, 1998. "Multiproduct Multinationals and Reciprocal FDI Dumping," NBER Working Papers 6483, National Bureau of Economic Research, Inc.
  9. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, December.
  10. Keith Head & Thierry Mayer, 2000. "Non-Europe: The magnitude and causes of market fragmentation in the EU," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(2), pages 284-314, June.
  11. Redding, Stephen J & Venables, Anthony J., 2000. "Economic Geography and International Inequality," CEPR Discussion Papers 2568, C.E.P.R. Discussion Papers.
  12. Norman, George & Motta, Massimo, 1993. "Eastern European Economic Integration and Foreign Direct Investment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(4), pages 483-507, Winter.
  13. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Investment in the European Union," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 959-972, November.
  14. Blomström, Magnus & Kokko, Ari, 1997. "Regional Integration and Foreign Direct Investment," CEPR Discussion Papers 1659, C.E.P.R. Discussion Papers.
  15. Markusen, James R. & Venables, Anthony J., 2000. "The theory of endowment, intra-industry and multi-national trade," Journal of International Economics, Elsevier, vol. 52(2), pages 209-234, December.
  16. Puga, Diego & Venables, Anthony J., 1997. "Preferential trading arrangements and industrial location," Journal of International Economics, Elsevier, vol. 43(3-4), pages 347-368, November.
  17. Motta, Massimo, 1992. "Multinational firms and the tariff-jumping argument : A game theoretic analysis with some unconventional conclusions," European Economic Review, Elsevier, vol. 36(8), pages 1557-1571, December.
  18. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
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Citations

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Cited by:
  1. Julia Kubny & Florian Mölders & Peter Nunnenkamp, 2008. "Regional Integration and FDI in Emerging Markets," Kiel Working Papers 1418, Kiel Institute for the World Economy.
  2. Jean-François HOARAU, 2009. "Investissements Directs Étrangers Et Intégration Régionale : Un État Des Lieux Pour Le Marché Commun D’Afrique De L’Est Et Du Sud," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 29, pages 69-103.
  3. Köller, Mareike, 2006. "Ausländische Direktinvestitionen in Irland: Eine theoriegestützte Analyse," Center for European, Governance and Economic Development Research Discussion Papers 58, University of Goettingen, Department of Economics.
  4. Innwon Park & Soonchan Park, 2008. "Reform Creating Regional Trade Agreements And Foreign Direct Investment: Applications For East Asia," Pacific Economic Review, Wiley Blackwell, vol. 13(5), pages 550-566, December.

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