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North-South Customs Unions and International Capital Mobility

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  • Eduardo Fernández-Arias
  • Mark M. Spiegel

Abstract

This paper examines the implications of a North-South trade accord where investments in the Southern partner nation exhibit country risk. Our analysis demonstrates that North-South trade accords can serve as credibility-enhancing mechanisms that induce additional foreign capital inflows into Southern partner nations. The presence of sovereign risk changes the tradeoffs between trade creation and diversion, enhancing the potential for regional trade accords to increase the welfare of accord members.

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Bibliographic Info

Paper provided by Inter-American Development Bank in its series IDB Publications with number 6424.

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Date of creation: Mar 1997
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Handle: RePEc:idb:brikps:6424

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Keywords: Integration & Trade; international capital mobility; WP-341;

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References

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  1. de Melo, Jaime & Panagariya, Arvind & Rodrik, Dani, 1993. "The new regionalism : a country perspective," Policy Research Working Paper Series 1094, The World Bank.
  2. Joyce Manchester & Warwick Mckibbin, 1995. "The global macroeconomics of NAFTA," Open Economies Review, Springer, Springer, vol. 6(3), pages 203-223, July.
  3. Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
  4. Safadi, Raed & Yeats, Alexander, 1993. "The North American Free Trade Agreement (NAFTA) : its effect on South Asia," Policy Research Working Paper Series 1119, The World Bank.
  5. Miyagiwa, Kaz F. & Young, Leslie, 1986. "International capital mobility and commercial policy in an economic region," Journal of International Economics, Elsevier, Elsevier, vol. 20(3-4), pages 329-341, May.
  6. Gary Clyde Hufbauer & Jeffrey J. Schott, 1992. "North American Free Trade: Issues and Recommendations," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 71, July.
  7. Carlo Perroni & John Whalley, 2000. "The new regionalism: trade liberalization or insurance?," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 33(1), pages 1-24, February.
  8. Kyle Bagwell & Robert W. Staiger, 1993. "Multilateral Tarriff Cooperation During the Formation of Regional Free Trade Areas," NBER Working Papers 4364, National Bureau of Economic Research, Inc.
  9. Bulow, J. & Rogoff, K., 1988. "Sovereign Debt: Is To Forgive To Forget?," Working papers, Wisconsin Madison - Social Systems 8813, Wisconsin Madison - Social Systems.
  10. Gene M. Grossman & Elhanan Helpman, 1993. "The Politics of Free Trade Agreements," NBER Working Papers 4597, National Bureau of Economic Research, Inc.
  11. Raquel Fernandez, 1997. "Returns to Regionalism: An Evaluation of Non-Traditional Gains from RTAs," NBER Working Papers 5970, National Bureau of Economic Research, Inc.
  12. Bagwell, Kyle & Staiger, Robert W, 1997. "Multilateral Tariff Cooperation during the Formation of Free Trade Areas," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 291-319, May.
  13. Thomas, J. & Worrall, T., 1990. "Foreign Direct Investment And The Risk Of Expropriation," The Warwick Economics Research Paper Series (TWERPS) 342, University of Warwick, Department of Economics.
  14. McLaren, John, 1997. "Size, Sunk Costs, and Judge Bowker's Objection to Free Trade," American Economic Review, American Economic Association, American Economic Association, vol. 87(3), pages 400-420, June.
  15. Cole, Harold L. & English, William B., 1991. "Expropriation and direct investment," Journal of International Economics, Elsevier, Elsevier, vol. 30(3-4), pages 201-227, May.
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Cited by:
  1. Dieter M. Urban, 2006. "Multilateral Investment Agreement in a Political Equilibrium," CESifo Working Paper Series 1830, CESifo Group Munich.
  2. Goohoon Kwon & Raphael A. Espinoza, 2009. "Regional Financial Integration in the Caribbean," IMF Working Papers 09/139, International Monetary Fund.
  3. Tekin-Koru, Ayca & Waldkirch, Andreas, 2009. "North-South Integration and the Location of Foreign Direct Investment," MPRA Paper 12969, University Library of Munich, Germany.
  4. Popa, Ana & Oprunenco, Alex & Lücke, Matthias & Tekce, Mahmut & Eugen, Hristev & Mincu, Georgeta & Vasilescu, Victoria & Prohnitchi, Valeriu, 2009. "A free trade area between the Repbulic of Moldova and the European Union: feasibility, perspectives and potential impact," Open Access Publications from Kiel Institute for the World Economy, Kiel Institute for the World Economy (IfW) 28899, Kiel Institute for the World Economy (IfW).
  5. Andreas Waldkirch, 2004. "The 'New Regionalism': Integration as a Commitment Device for Developing Countries," International Trade, EconWPA 0412004, EconWPA.
  6. Piazolo, Daniel, 1997. "Gaining credibility and enhancing economic growth through regional integration: The case for EU membership of Eastern Europe," Kiel Working Papers 837, Kiel Institute for the World Economy.
  7. Tekin-Koru, Ayca & Waldkirch, Andreas, 2007. "North American Integration and the Location of Foreign Direct Investment," MPRA Paper 5212, University Library of Munich, Germany.

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