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Investment discrimination and the proliferation of preferential trade agreements

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  • Baccini, Leonardo
  • Dür, Andreas

Abstract

The proliferation of bilateral and regional trade agreements has arguably been the main change to the international trading system since the end of the Uruguay Round in the mid-1990s. We argue that investment discrimination plays a major role in this development. Preferential trade agreements can lead to investment discrimination because of tariff differentials on intermediary products and as a result of provisions that relax investment rules for the parties to the agreement. Excluded countries are sensitive to the costs that this investment discrimination imposes on domestic firms and react by signing a trade agreement that aims at leveling the playing field. We test our argument using a spatial econometric model and a newly compiled data set that includes 166 countries and covers a period of eighteen years (1990–2007). Our findings strongly support the argument that investment discrimination is a major driver of the proliferation of trade agreements.

Suggested Citation

  • Baccini, Leonardo & Dür, Andreas, 2015. "Investment discrimination and the proliferation of preferential trade agreements," LSE Research Online Documents on Economics 62305, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:62305
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    File URL: http://eprints.lse.ac.uk/62305/
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    References listed on IDEAS

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    1. Baccini, Leonardo & Dür, Andreas, 2012. "The New Regionalism and Policy Interdependence," British Journal of Political Science, Cambridge University Press, vol. 42(1), pages 57-79, January.
    2. Baccini, Leonardo & Dür, Andreas, 2012. "The new regionalism and policy interdependence," LSE Research Online Documents on Economics 43056, London School of Economics and Political Science, LSE Library.
    3. Baier, Scott L; Bergstrand, Jeffery H; Mariutto, Roland., 2010. "The Growth of Bilateralism," CAGE Online Working Paper Series 12, Competitive Advantage in the Global Economy (CAGE).
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    Cited by:

    1. Ka Zeng & Karen Sebold & Yue Lu, 2020. "Global value chains and corporate lobbying for trade liberalization," The Review of International Organizations, Springer, vol. 15(2), pages 409-443, April.
    2. Benjamin Faude, 2020. "Breaking Gridlock: How Path Dependent Layering Enhances Resilience in Global Trade Governance," Global Policy, London School of Economics and Political Science, vol. 11(4), pages 448-457, September.
    3. Jonas Gamso & Robert Grosse, 2021. "Trade agreement depth, foreign direct investment, and the moderating role of property rights," Journal of International Business Policy, Palgrave Macmillan, vol. 4(2), pages 308-325, June.
    4. Nunnenkamp Peter, 2016. "Demokratie und internationale Investitionsabkommen: (Überraschende) Zusammenhänge und (lückenhafte) Erklärungen," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(4), pages 364-382, December.

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    More about this item

    Keywords

    preferential trade agreement; foreign direct investment; diffusion; discrimination;
    All these keywords.

    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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