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Regional Trade Integration and Multinational Firm Strategies

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  • Foley, C. Fritz
  • Antras, Pol
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    Abstract

    This paper analyzes the effects of the formation of a regional trade agreement on the level and nature of multinational firm activity. We examine aggregate data that captures the response of U.S. multinational firms to the formation of the ASEAN free trade agreement. Observed patterns guide the development of a model in which heterogeneous firms from a source country decide how to serve two foreign markets. Following a reduction in tariffs on trade between the two foreign countries, the model predicts growth in the number of source-country firms engaging in foreign direct investment, growth in the size of affiliates that are active in reforming countries both before and after the tariff reduction, and an increase in the extent to which the sales of affiliates in reforming countries are directed towards other reforming countries. Analysis of firm-level responses to the creation of the ASEAN free trade agreement yields results that are consistent with these predictions.

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    File URL: http://dash.harvard.edu/bitstream/handle/1/3374522/antras_regional.pdf
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    Bibliographic Info

    Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3374522.

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    Date of creation: 2009
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    Publication status: Published in Nber Working Paper Series
    Handle: RePEc:hrv:faseco:3374522

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    1. Jonathan E. Haskel & Sonia C. Pereira & Matthew J. Slaughter, 2002. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," Working Papers 452, Queen Mary, University of London, School of Economics and Finance.
    2. Stephen Yeaple & Volker Nocke, 2005. "An Assignment Theory of Foreign Direct Investment," 2005 Meeting Papers 146, Society for Economic Dynamics.
    3. Heyman, Fredrik & Sjöholm, Fredrik & Gustavsson Tingvall, Patrik, 2004. "Is There Really A Foreign Ownership Wage Premium?Evidence From Matched Employer-Employee Data," EIJS Working Paper Series 206, The European Institute of Japanese Studies.
    4. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
    5. Maggie X. Chen, 2008. "Regional Economic Integration and Geographic Concentration of Multinational Firms," Working Papers 2009-07, The George Washington University, Institute for International Economic Policy.
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