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Regional integration and foreign direct investment : a conceptual framework and three cases

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  • Blomstrom, Magnus
  • Kokko, Ari

Abstract

The authors discuss how regional investment agreements may affect the inward and outward flows of foreign direct investments in the integrating region. After describing the multidimensional character of the issue, they provide a conceptual framework for analysis as well as three case studies focused on different kinds of regional integration: (1) North-North integration (Canada joining the CUSFTA); (2) North-South integration (Mexico's accession to NAFTA); and (3) South-South integration (MERCOSUR). They conclude that the response to an integration agreement will, in each case, depend on the environmental change brought about by the regional investment agreements, the locational advantage of the country or region, the competitiveness of local firms in the integrating region, and the motives for foreign direct investment in and by the country or region in question. The creation of the Canada-U.S. Free Trade Agreement (CUSFTA), for example, had relatively little influence on direct investment patterns in Canada, since much of the trade between Canada and the United States had been liberalized long before the CUSFTA was established. By contrast, the Mexican accession to NAFTA brought about significant policy changes, which helps to explain foreign multinationals'increasing interest in the country. Similarly, the establishment of the MERCOSUR Common Market is likely to significantly affect the region's policy environment, which suggests that it may have a notable (although varying) impact on foreign direct investment in the four member countries.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1750.

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Date of creation: 30 Apr 1997
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Handle: RePEc:wbk:wbrwps:1750

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Keywords: Economic Theory&Research; Environmental Economics&Policies; International Terrorism&Counterterrorism; Payment Systems&Infrastructure; Labor Policies; Trade and Regional Integration; Environmental Economics&Policies; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Economic Theory&Research; International Terrorism&Counterterrorism;

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References

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  1. Brecher, Richard A. & Diaz Alejandro, Carlos F., 1977. "Tariffs, foreign capital and immiserizing growth," Journal of International Economics, Elsevier, Elsevier, vol. 7(4), pages 317-322, November.
  2. Smith, Alasdair & Venables, Anthony J., 1988. "Completing the internal market in the European Community : Some industry simulations," European Economic Review, Elsevier, Elsevier, vol. 32(7), pages 1501-1525, September.
  3. René Belderbos, 1992. "Large multinational enterprises based in a small economy: Effects on domestic investment," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 128(3), pages 543-557, September.
  4. Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc.
  5. Bhagwati, Jagdish N. & Brecher, Richard A., 1980. "National welfare in an open economy in the presence of foreign-owned factors of production," Journal of International Economics, Elsevier, Elsevier, vol. 10(1), pages 103-115, February.
  6. Stevens, Guy V. G. & Lipsey, Robert E., 1992. "Interactions between domestic and foreign investment," Journal of International Money and Finance, Elsevier, Elsevier, vol. 11(1), pages 40-62, February.
  7. George N. Yannopoulos, 1990. "Foreign Direct Investment and European Integration: The Evidence from the Formative Years of the European Community," Journal of Common Market Studies, Wiley Blackwell, Wiley Blackwell, vol. 28(3), pages 235-259, 03.
  8. V.N. Balasubramanyam & David Greenaway, 1992. "Economic Integration and Foreign Direct Investment: Japanese Investment in the EC," Journal of Common Market Studies, Wiley Blackwell, Wiley Blackwell, vol. 30(2), pages 175-194, 06.
  9. Robert E. Lipsey & Magnus Blomstrom & Eric D. Ramstetter, 1998. "Internationalized Production in World Output," NBER Chapters, in: Geography and Ownership as Bases for Economic Accounting, pages 83-138 National Bureau of Economic Research, Inc.
  10. Gary Clyde Hufbauer & Jeffrey J. Schott, 1993. "NAFTA: An Assessment, Revised Edition," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 70, July.
  11. Smith, Alasdair, 1992. "Measuring the effects of '1992'," Discussion Papers in Economics, Department of Economics, University of Sussex 07/92, Department of Economics, University of Sussex.
  12. Kokko, Ari, 1994. "Technology, market characteristics, and spillovers," Journal of Development Economics, Elsevier, Elsevier, vol. 43(2), pages 279-293, April.
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Citations

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Cited by:
  1. Jost, Thomas & Nunnenkamp, Peter, 2003. "Deutsche Direktinvestitionen in Entwicklungs- und Reformländern : haben sich die Motive gewandelt?," Open Access Publications from Kiel Institute for the World Economy, Kiel Institute for the World Economy (IfW) 2987, Kiel Institute for the World Economy (IfW).
  2. Peter Nunnenkamp, 2001. "European FDI Strategies in Mercosur Countries," Kiel Working Papers 1047, Kiel Institute for the World Economy.
  3. Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2007. "Estimating Regional Trade Agreement Effects on FDI in an Interdependent World," Center for Policy Research Working Papers, Center for Policy Research, Maxwell School, Syracuse University 100, Center for Policy Research, Maxwell School, Syracuse University.
  4. Penelope Pacheco-López, 2004. "Foreign Direct Investment, Exports and Imports in Mexico," Studies in Economics, Department of Economics, University of Kent 0404, Department of Economics, University of Kent.
  5. Sanchez Martin, Miguel Eduardo & Escribano Frances, Gonzalo & de Arce Borda, Rafael, 2014. "How regional integration and transnational energy networks have boosted FDI in Turkey (and may cease to do so): a case study: how geo-political alliances and regional networks matter," Policy Research Working Paper Series 6970, The World Bank.
  6. Ziltener, Patrick, 2002. "Wirtschaftliche Effekte des EU-Binnenmarktprogramms," Center for European, Governance and Economic Development Research Discussion Papers 15, University of Goettingen, Department of Economics.
  7. Ansari, Nasim & Khan, Tamanna, 2011. "FDI and regional economic integration in SAARC region: problems and prospects," MPRA Paper 32365, University Library of Munich, Germany.
  8. Selim Elekdag & Saade Chami & Ivan Tchakarov, 2004. "What Are the Potential Economic Benefits of Enlarging the Gulf Cooperation Council?," IMF Working Papers 04/152, International Monetary Fund.
  9. Mariam Camarero & Cecilio Tamarit, 2003. "Estimating exports and imports demand for Manufactured goods: The role of FDI," European Economy Group Working Papers, European Economy Group 22, European Economy Group.
  10. repec:got:cegedp:15 is not listed on IDEAS
  11. Claudia M. Buch & Robert M. Kokta & Daniel Piazolo, 2001. "Does the East Get What Would Otherwise Flow to the South? FDI Diversion in Europe," Kiel Working Papers 1061, Kiel Institute for the World Economy.
  12. Fiodendji, Daniel Komlan, 2013. "Do Institutions Quality Affect FDI Inflows in Sub Saharan African Countries?," MPRA Paper 57414, University Library of Munich, Germany.
  13. Lübcke, Britta & Piazolo, Daniel, 1998. "Wohlfahrtseffekte einer nordatlantischen Handelsliberalisierung," Kiel Working Papers 885, Kiel Institute for the World Economy.
  14. Christian Milelli & Alice Sindzingre, 2013. "Chinese Outward Foreign Direct Investment in Developed and Developing Countries: Converging Characteristics?," EconomiX Working Papers 2013-34, University of Paris West - Nanterre la Défense, EconomiX.
  15. Aradhna Aggarwal, 2010. "Regional Economic Integration and FDI in South Asia : Prospects and Problems," Working Papers id:2691, eSocialSciences.
  16. Salike, Nimesh, 2010. "Effect of regional integration agreement on foreign direct investment : A theoretical perspective," MPRA Paper 31859, University Library of Munich, Germany.
  17. Jean-François HOARAU, 2009. "Investissements Directs Étrangers Et Intégration Régionale : Un État Des Lieux Pour Le Marché Commun D’Afrique De L’Est Et Du Sud," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 29, pages 69-103.
  18. Eduardo Levy Yeyati & Christian Daude & Ernesto Stein, 2003. "Regional Integration and the Location of FDI," Business School Working Papers, Universidad Torcuato Di Tella doce, Universidad Torcuato Di Tella.
  19. Peter Nunnenkamp, 2001. "Ist diesmal alles anders? Die neue Welle regionaler Integration in Lateinamerika aus europäischer Perspektive," Kiel Working Papers 1026, Kiel Institute for the World Economy.

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