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North American Integration and the Location of Foreign Direct Investment

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  • Tekin-Koru, Ayca
  • Waldkirch, Andreas

Abstract

We investigate how the North American Free Trade Agreement (NAFTA) has altered the pattern of foreign direct investment (FDI) in North America. The theoretical analysis suggests that NAFTA affects the incentives of U.S. and non-U.S. firms locating in Mexico differently and may lead to investment diversion from the U.S. Combining U.S. and Mexican FDI data and using a difference-in-differences estimator, we find that U.S. FDI in Mexico has increased since the inception of NAFTA in a manner that cannot be explained entirely by the usual FDI determinants. Other countries have been using Mexico as an export platform since before NAFTA with no discernible positive effect from the agreement. We find little evidence that inward U.S. FDI has been diverted. The results are robust to a number of different model and econometric specifications as well as the skill data used.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5212.

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Date of creation: Jul 2007
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Handle: RePEc:pra:mprapa:5212

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Keywords: Foreign Direct Investment; Multinationals; Export Platform; NAFTA;

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  19. Ethier, Wilfred J, 1998. "The New Regionalism," Economic Journal, Royal Economic Society, vol. 108(449), pages 1149-61, July.
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