IDEAS home Printed from https://ideas.repec.org/a/nea/journl/y2016i31p40-65.html
   My bibliography  Save this article

Investment Effects of Preferential Trade Agreements: Quality Matters

Author

Listed:
  • Taganov, B.

    (Russian Presidential Academy of National Economy and Public Administration, Moscow, Russia)

  • Idrisov, G.

    (Russian Presidential Academy of National Economy and Public Administration, Moscow, Russia
    Gaidar Institute for Economic Policy, Moscow, Russia)

Abstract

We develop a theoretical model of international capital movement in form of FDI. Our theoretical model describes non-linear impact of heterogeneous preferential trade agreements (PTAs) on FDI. In order to quantify PTAs heterogeneity we develop a methodology of PTAs classification. Using the methodology, we quantified a quality of more than 200 PTAs (out of 380 existing globally). Our model predicts that impact of PTA on FDI will depend on observed quality of PTA while marginal investment effect of PTAs will decrease with PTAs' quality improvement. Empirically, we show that use of simple dummy for PTAs without taking into account PTAs heterogeneity and the non-linear effects of PTA on FDI overestimate the investment effects of PTAs up to 100%. Bilateral PTAs within CIS insignificantly affects FDI between countries - maximum investment effects of such agreements are estimated at 19%. Multilateral PTAs have a significant investment effects: FDI between signatories of multilateral PTAs rose up to 71%.

Suggested Citation

  • Taganov, B. & Idrisov, G., 2016. "Investment Effects of Preferential Trade Agreements: Quality Matters," Journal of the New Economic Association, New Economic Association, vol. 31(3), pages 40-65.
  • Handle: RePEc:nea:journl:y:2016:i:31:p:40-65
    as

    Download full text from publisher

    File URL: http://www.econorus.org/repec/journl/2016-31-40-65r.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Jörn Kleinert & Farid Toubal, 2010. "Gravity for FDI," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 1-13, February.
    2. repec:cup:cbooks:9781107034204 is not listed on IDEAS
    3. Oleg Itskhoki, 2006. "Model selection and paradoxes of prediction (in Russian)," Quantile, Quantile, issue 1, pages 43-51, September.
    4. Grossman, Gene M & Helpman, Elhanan, 1995. "The Politics of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 85(4), pages 667-690, September.
    5. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    6. Redding, Stephen & Venables, Anthony J., 2004. "Economic geography and international inequality," Journal of International Economics, Elsevier, vol. 62(1), pages 53-82, January.
    7. Egger, Peter & Pfaffermayr, Michael, 2004. "The impact of bilateral investment treaties on foreign direct investment," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 788-804, December.
    8. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    9. repec:idb:brikps:44298 is not listed on IDEAS
    10. Idrisov, Georgy (Идрисов, Георгий) & Taganov, Boris (Таганов, Борис), 2015. "Theoretical Questions of the Impact of the Conclusion of Preferential Trade Agreements on International Investment
      [Теоретические Вопросы Влияния Заключения Преференциальных Торговых Соглашений На
      ," Published Papers mn63, Russian Presidential Academy of National Economy and Public Administration.
    11. S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc.
    12. Krugman, Paul, 1983. "New Theories of Trade among Industrial Countries," American Economic Review, American Economic Association, vol. 73(2), pages 343-347, May.
    13. Bergstrand, Jeffrey H. & Egger, Peter, 2013. "What determines BITs?," Journal of International Economics, Elsevier, vol. 90(1), pages 107-122.
    14. Nigel Pain & Melanie Lansbury, 1997. "Regional Economic Integration and Foreign Direct Investment: The Case of German Investment in Europe," National Institute Economic Review, National Institute of Economic and Social Research, vol. 160(1), pages 87-99, April.
    15. Braconier, Henrik & Norback, Pehr-Johan & Urban, Dieter, 2005. "Multinational enterprises and wage costs: vertical FDI revisited," Journal of International Economics, Elsevier, vol. 67(2), pages 446-470, December.
    16. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    17. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-544, September.
    18. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    19. Bergstrand, Jeffrey H. & Egger, Peter, 2007. "A knowledge-and-physical-capital model of international trade flows, foreign direct investment, and multinational enterprises," Journal of International Economics, Elsevier, vol. 73(2), pages 278-308, November.
    20. Molly Lesher & Sébastien Miroudot, 2006. "Analysis of the Economic Impact of Investment Provisions in Regional Trade Agreements," OECD Trade Policy Papers 36, OECD Publishing.
    21. MacDermott, Raymond, 2007. "Regional trade agreement and foreign direct investment," The North American Journal of Economics and Finance, Elsevier, vol. 18(1), pages 107-116, February.
    22. James E. Anderson, 2011. "The Gravity Model," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 133-160, September.
    23. repec:sae:niesru:v:160:y::i:1:p:87-99 is not listed on IDEAS
    24. Kreinin, Mordechai E. & Plummer, Michael G., 2008. "Effects of regional integration on FDI: An empirical approach," Journal of Asian Economics, Elsevier, vol. 19(5-6), pages 447-454.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    foreign direct investment; preferential trade agreements; estimation of investment effects of integration; mathematical modelling;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nea:journl:y:2016:i:31:p:40-65. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alexey Tcharykov). General contact details of provider: http://edirc.repec.org/data/nearuea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.