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Economic Integration and Foreign Direct Investment

Author

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  • Bjorvatn, K.

Abstract

In the last two decades we have witnessed a rapid increase in foreign direct investment (FDI). Simultaneously, there has been a process of economic integration between countries, bringing down costs of trade. At first sight, the increased importance of FDI seems paradoxical; we would expect lower trade costs to promote trade rather than direct investment. This paper demonstrates that a reduction in trade costs may indeed induce firms to choose FDI rather than exports. We also demonstrate that such a strategy is associated with a welfare loss for the world as a whole.

Suggested Citation

  • Bjorvatn, K., 1999. "Economic Integration and Foreign Direct Investment," Papers 12/99, Norwegian School of Economics and Business Administration-.
    • Handle: RePEc:fth:norgee:12/99
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    More about this item

    Keywords

    ECONOMIC INTEGRATION ; TRADE ; INVESTMENTS;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • 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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