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Regional Economic Integration and Geographic Concentration of Multinational Firms

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  • Maggie X. Chen

    ()
    (Department of Economics/Institute for International Economic Policy, George Washington Universitys)

Abstract

A number of theoretical studies have predicted that preferential trade agreements (PTAs) raise outside multinationalsí incentive to invest in the participating countries, especially in those that are integrated with larger markets and have lower production costs. The hypothesis has however not been tested empirically. This paper addresses the issue by estimating the impact of PTAs on countriesí ability to attract multinationals. The evidence is broadly consistent with expectations. The formation of PTAs leads to an increase in FDI by outside multinationals, but the e§ect varies sharply with the size of integrated markets and countriesí comparative advantage. Countries integrated with larger markets experience a greater increase in total and export-platform FDI. Those with a higher labor endowment also attract more FDI especially in labor-intensive industries, but at the expense of their labor-scarce PTA partners.

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Bibliographic Info

Paper provided by The George Washington University, Institute for International Economic Policy in its series Working Papers with number 2009-07.

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Length: 42 pages
Date of creation: Apr 2008
Date of revision:
Publication status: Published in the European Economic Review
Handle: RePEc:gwi:wpaper:2009-07

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Web page: http://www.gwu.edu/~iiep/
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Keywords: regional economic integration; multinational Örms; geographic concentration; market potential; comparative advantage;

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References

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Citations

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Cited by:
  1. Tekin-Koru, Ayca, 2009. "Asymmetric effects of trade costs on entry modes: Firm level evidence," MPRA Paper 21483, University Library of Munich, Germany.
  2. Viktor Hultgren & Petr Mariel & Carlos Rodríguez González, 2011. "Structural Breaks and Spatial Linkages in FDI: Further Evidence in OECD Countries," Open Economies Review, Springer, vol. 22(5), pages 897-915, November.
  3. Foley, C. Fritz & Antras, Pol, 2009. "Regional Trade Integration and Multinational Firm Strategies," Scholarly Articles 3374522, Harvard University Department of Economics.
  4. Maggie Xiaoyang Chen, 2009. "Third Country Effects in Multinational Production Networks," Working Papers 2009-01, The George Washington University, Institute for International Economic Policy.
  5. Pamela Bombarda, 2013. "Firm Heterogeneity and the Localization of Economic Activities," THEMA Working Papers 2013-25, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  6. Chen, Maggie, 2009. "Interdependence in Multinational Production Networks," MPRA Paper 23506, University Library of Munich, Germany.
  7. Natalia VECHIU, 2010. "Globalization and FDIs: determinants and competition effects in Central and Eastern European Countries," Working Papers 2010-2011_8, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Nov 2010.
  8. Shawn ARITA & TANAKA Kiyoyasu, 2013. "Regional Investment Liberalization and FDI," Discussion papers 13088, Research Institute of Economy, Trade and Industry (RIETI).
  9. Bagoulla, Corinne & Péridy, Nicolas, 2011. "Market access and the other determinants of North–South manufacturing location choice: An application to the Euro-Mediterranean area," Economic Systems, Elsevier, vol. 35(4), pages 537-561.
  10. Waldkirch, Andreas & Tekin-Koru, Ayca, 2010. "North American Integration and Canadian Foreign Direct Investment," MPRA Paper 21482, University Library of Munich, Germany.

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