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Beyond trade : the impact of preferential trade agreements on foreign direct investment inflows

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Author Info
Medvedev, Denis

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Abstract

The author investigates the effects of preferential trade agreements (PTAs) on the net foreign direct investment (FDI) inflows of member countries using a comprehensive database of PTAs in a panel setting. He finds that PTA membership is associated with a positive change in net FDI inflows, and the FDI gains are increasing in the market size of the PTA partners and their proximity to the host country. The author identifies several different channels through which preferential trade liberalization may affect FDI, and confirms that both threshold effects (signing the agreement) and market size effects (joining a larger and faster-growing common market) are important determinants of net FDI inflows, although the latter seem to dominate. The estimated relationship is largely driven by North-South PTAs, and is most pronounced in the late 1990s and early 2000s, the period when the majority of"deep integration"PTAs had been advanced.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4065.

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Date of creation: 01 Nov 2006
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Handle: RePEc:wbk:wbrwps:4065

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Related research
Keywords: Free Trade; Trade and Regional Integration; Trade Law; Foreign Direct Investment; Economic Theory&Research;

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Oliver Morrissey, . "Investment Provisions in Regional Integration Agreements for Developing Countries," Discussion Papers 08/06, University of Nottingham, CREDIT. [Downloadable!]
  2. Nagesh Kumar, 2007. "Investment Provisions in Regional Trading Arrangements in Asia: Relevance, Emerging Trends, and Policy Implications," Working Papers 4607, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada.. [Downloadable!]
  3. Hazel Parcon, 2008. "Disaggregating PTAs at the Role of International Division of Labor on PTA Formation," Working Papers 200806, University of Hawaii at Manoa, Department of Economics. [Downloadable!]
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