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Reform Creating Regional Trade Agreements And Foreign Direct Investment: Applications For East Asia

  • Innwon Park
  • Soonchan Park

We estimate the investment creation and diversion effects of RTAs by using an extended gravity equation focusing on domestic reform as a commitment device for RTA membership. As a case study, we estimate the impact of proposed East Asian RTAs on inward FDI. We find that: (i) reform creating RTA membership, larger market size, better skilled labour and lower trade costs all contribute positively and significantly to inward FDI; and (ii) most of the proposed East Asian RTAs promote intra-bloc FDI. In particular, both South-North and North-North RTAs prove to be more preferable membership combinations to South-South RTAs in East Asia. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Asia Pty Ltd

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Article provided by Wiley Blackwell in its journal Pacific Economic Review.

Volume (Year): 13 (2008)
Issue (Month): 5 (December)
Pages: 550-566

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Handle: RePEc:bla:pacecr:v:13:y:2008:i:5:p:550-566
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