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The impact of regional investment liberalization on foreign direct investment: A firm-level simulation assessment


  • Tanaka, Kiyoyasu
  • Arita, Shawn


With the proliferation of regional economic integration, investment liberalization has gained in importance. This paper conducts counterfactual policy experiments to simulate the response of multinational firms to a regional decline in investment costs. We find evidence of investment creation effects at the aggregate level. While there is weak evidence of investment diversion effects, the non-participation in regional integration discourages multinational activity of non-member countries. As less productive firms experience the extensive-margin growth strongly, the effects differ significantly by multinational firms with heterogeneous productivity.

Suggested Citation

  • Tanaka, Kiyoyasu & Arita, Shawn, 2016. "The impact of regional investment liberalization on foreign direct investment: A firm-level simulation assessment," Japan and the World Economy, Elsevier, vol. 37, pages 17-26.
  • Handle: RePEc:eee:japwor:v:37-38:y:2016:i::p:17-26 DOI: 10.1016/j.japwor.2016.02.001

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    References listed on IDEAS

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    More about this item


    Regional integration; Investment liberalization; FDI; Firm heterogeneity; Japan;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business


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