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Trading Blocs and Foreign Direct Investment: Endogenous Coalition Structure

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Author Info
Hyejoon Im
Abstract

I examine the relationship between trading blocs and Foreign Direct Investment (FDI). Firms in the model serve foreign markets either by exporting or by setting up plants abroad, which is FDI. I find that countries forming a bloc could attract FDI from non-member countries. However, I show by using a coalition formation game that this FDI-attracting bloc cannot be an equilibrium outcome when multilateralism (i.e., the free trade world) is an option for countries. This result is mainly related to the adverse welfare effects of the tariff-jumping FDI

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Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 532.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:532

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Keywords: trading blocs multinational corporations FDI coalition formation game

Find related papers by JEL classification:
F15 - International Economics - - Trade - - - Economic Integration
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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  7. Krueger, Anne O., 1997. "Free trade agreements versus customs unions," Journal of Development Economics, Elsevier, vol. 54(1), pages 169-187, October. [Downloadable!] (restricted)
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  10. Arvind Panagariya, 2000. "Preferential Trade Liberalization: The Traditional Theory and New Developments," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 287-331, June. [Downloadable!] (restricted)
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  16. John McLaren, 2002. "A Theory Of Insidious Regionalism," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 571-608, May. [Downloadable!] (restricted)
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