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Effect of regional integration agreement on foreign direct investment : A theoretical perspective


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  • Salike, Nimesh


This 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 Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 31859.

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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
Handle: RePEc:pra:mprapa:31859

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Keywords: Regional integration; Tariff- jumping; Internalization; Vertical FDI; Horizontal FDI; Environmental change; Locational advantage;

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  1. Blomström, Magnus & Kokko, Ari, 1997. "Regional Integration and Foreign Direct Investment," CEPR Discussion Papers 1659, C.E.P.R. Discussion Papers.
  2. Juergen von Hagen & Haiping Zhang, 2010. "International Capital Flows and World Output Gains," Working Papers 01-2010, Singapore Management University, School of Economics.
  3. Blomstrom, Magnus & Kokko, Ari, 1997. "Regional integration and foreign direct investment : a conceptual framework and three cases," Policy Research Working Paper Series 1750, The World Bank.
  4. Urata, Shujiro & Kawai, Hiroki, 2000. " The Determinants of the Location of Foreign Direct Investment by Japanese Small and Medium-Sized Enterprises," Small Business Economics, Springer, vol. 15(2), pages 79-103, September.
  5. Eduardo Levy Yeyati & Christian Daude & Ernesto Stein, 2003. "Regional Integration and the Location of FDI," Business School Working Papers doce, Universidad Torcuato Di Tella.
  6. David F. Bradford, 1978. "Tax Neutrality and the Investment Tax Credit," NBER Working Papers 0269, National Bureau of Economic Research, Inc.
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