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Regional Integration and the (Re)Distrubtion of Foreign Direct Investment between Asymmetric Hosts

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  • Denise Eby Konan
  • Jeff Heinrich

Abstract

We analyze the impact of economic integration on the activities of multinational enterprises in a general equilibrium model with asymmetric countries. Foreign direct investment (FDI) inflows are likely only to the extent that multinationals have not already shifted production to the integrating region. Integration could lead to industry rationalization that reduces FDI if tariffjumping is prevalent before liberalization. We find a magnification effect of the level of external protection on both multinational entry and exit. Low-protection countries will have greater MNE entry than high-protection countries due to wage differences.

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Bibliographic Info

Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c013_002.

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Length: 24 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:deg:conpap:c013_002

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Related research

Keywords: multinational enterprise; foreign direct investment; economic integration; preferential trade agreements;

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  1. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc.
  2. Shabtai Donnenfeld, 2003. "Regional Blocs and Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 11(5), pages 770-788, November.
  3. Raff, Horst, 2004. "Preferential trade agreements and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 88(12), pages 2745-2763, December.
  4. Magnus Blomstrom & Ari Kokko, 1997. "Regional Integration and Foreign Direct Investment," NBER Working Papers 6019, National Bureau of Economic Research, Inc.
  5. Heinrich, Jeff & Eby Konan, Denise, 2000. "Foreign Direct Investment and Host-Country Trading Blocs," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 15, pages 565-584.
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