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Analyzing Effects of the Regional Comprehensive Economic Partnership on FDI in a Firm Heterogeneity CGE Framework

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  • Li, Qiaomin

Abstract

The RCEP (Regional Comprehensive Economic Partnership) is a free trade agreement (FTA) that is currently under negotiation among China and 15 Asian countries. It is another mega FTA in the Asia-Pacific region after the Trans-Pacific Partnership (TPP). This paper investigates the potential effect of the RCEP on foreign direct investment (FDI) with a focus on China through a computable general equilibrium (CGE) model. The CGE model is built on the extended theory of firm heterogeneity to FDI, which is able to capture the intensive margin and extensive margin of FDI increase. The RCEP is simulated to impact on FDI through a direct effect of FDI liberalization and an indirect effect of trade liberalization. Simulation results show that the RCEP will encourage FDI to China through its trade effect and the direct FDI effect. While the competition from imports drives out the least productive foreign invested firms, the export expansion of firms using FDI will lead to an increase in foreign investment. In addition, the facilitation of trade in intermediate goods tends to promote vertical FDI. The direct FDI effect from investment liberalization will evidently promote FDI from partners. As for the welfare effect, China will gain US$103~214 billion, accounting for 1.08~2.24% of GDP.

Suggested Citation

  • Li, Qiaomin, 2017. "Analyzing Effects of the Regional Comprehensive Economic Partnership on FDI in a Firm Heterogeneity CGE Framework," Conference papers 330179, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:330179
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    File URL: https://ageconsearch.umn.edu/record/330179/files/8441_Li.pdf
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    Cited by:

    1. Zhang, Wenwen & Cao, Shuo & Zhang, Xuan & Qu, Xuefeng, 2023. "COVID-19 and stock market performance: Evidence from the RCEP countries," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 717-735.
    2. Zhou, Lingling & Pan, Chen & He, Jianwu & Li, Shantong, 2021. "The Impact of RCEP on Chinese Regional Economy from Global Value Chains Perspective," Conference papers 333306, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Durán Lima, José Elías & Aguiar, Angel & Ronzheimer, Ira Nadine, 2021. "Economic and social effects of a possible trade agreement between Latin America and the Asia-Pacific region," Comercio Internacional 47659, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    4. Thompson, Edmund R. & Dericks, Gerard H. & Fai, Felicia, 2019. "Development and validation of a firm-level vertical and horizontal internationalization metric," International Business Review, Elsevier, vol. 28(3), pages 533-543.
    5. Jun Zhai & Zhuo Ning, 2022. "Models for the Economic Impacts of Forest Disturbances: A Systematic Review," Land, MDPI, vol. 11(9), pages 1-16, September.
    6. Zhou, Sheng & Xu, Zhiwei, 2022. "Energy efficiency assessment of RCEP member states: A three-stage slack based measurement DEA with undesirable outputs," Energy, Elsevier, vol. 253(C).
    7. Minh Doan Nguyen & Nga Le Thi Viet & Huy Dinh Tran Ngoc & Dat Pham Minh, 2021. "Vietnam’s Meat Import Market Under Impacts Of The European -Vietnam Free Trade Agreement And Quality Management Demand," Management, Sciendo, vol. 25(1), pages 99-117, January.
    8. Michael Frenkel & Tuyet Ngo, 2021. "Das RCEP-Abkommen und dessen Bedeutung für die EU [The RCEP and Its Relevance to the EU]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 101(6), pages 432-438, June.

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    Keywords

    International Relations/Trade;

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