Effect of regional integration agreement on foreign direct investment : A theoretical perspective
AbstractThis paper looked into inter- relationships between Regional Integration Agreement (RIA) and Foreign Direct Investment (FDI) from theoretical point of view. It tried to figure out the conducts of FDI after the formation of RIA from intra- regional and inter- regional perspective. The theoretical framework was developed from the cross- section tabulation of motives and modes of FDI. It is identified that multinationals have two basic rationales for their motives of investment abroad: tariff- jumping and internalization. Further, they conduct their decision of FDI through two modes: vertical and horizontal FDI. To study the distribution of FDI in individual economy after RIA, the study of “Attractiveness matrix” was carried out. It suggested that the flow of FDI depends upon the consequences of “Environmental change” and “Locational advantage” of the host economies within the region.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 31859.
Date of creation: 16 Jun 2010
Date of revision:
Publication status: Published in Journal of Business and Behavioral Sciences (JBBS) Number 1.Volume(2010): pp. 211-226
Regional integration; Tariff- jumping; Internalization; Vertical FDI; Horizontal FDI; Environmental change; Locational advantage;
Find related papers by JEL classification:
- F15 - International Economics - - Trade - - - Economic Integration
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
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