IDEAS home Printed from https://ideas.repec.org/p/ags/pugtwp/332959.html
   My bibliography  Save this paper

Evaluating the Impact of FTAs on FDI: A Text-Based Approach

Author

Listed:
  • Dadkhah, Ali
  • Ciuriak, Dan

Abstract

The empirical literature on the impact of bilateral investment treaties (BITs) on foreign direct investment (FDI) has generally concluded that there this is no identifiable impact. We consider the latter issue by adopting a text-based approach to evaluate the liberalization impact of the FTAs on FDI flows for the full range of goods and services sectors. In particular, we map the legal commitments in FTAs onto an index that measures liberalization of FDI based on the OECD’s FDI Regulatory Restrictiveness Index (FDIR), but drawing on the mode 3 component of the OECD’s Services Trade Restrictiveness Index (STRI) to enable greater granularity of treatment of the measures in FTAs. The modified index, which we label the FDI-RI to distinguish it from the FDIR, has the same broad policy areas and the same weighting scheme as the FDIR but the measures under each horizontal policy area (i.e., policies that apply to FDI in general without distinguishing sectors) that are covered in more detail by the STRI have been disaggregated into measures that correspond to those in the STRI. Importantly, we take into account the impact of FTA measures in improving upon each party’s bindings under the General Agreement on Trade in Services (GATS). To translate the text of FTAs into changes in the FDI-RI, first, a general template is created. This way we can calculate an FDI-RI policy shock based on the negotiated text of the FTA. After working out the impact of the FTA on each negotiating party’s template, the final answers are plugged into the OECD Simulator and the final score is calculated for FDI-RI. We combine the shock to the applied measures and the bindings by assigning a weight of 0.5 to the bindings. This generates a shock to the composite non-tariff barriers that consist of applied measures and the uncertainty facing firms that is implicit in the fact that countries have not bound commitments fully and thus can become more restrictive in the future.

Suggested Citation

  • Dadkhah, Ali & Ciuriak, Dan, 2018. "Evaluating the Impact of FTAs on FDI: A Text-Based Approach," Conference papers 332959, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332959
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/332959/files/9094.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
    2. Kazuhiro Sugie & Massimo Geloso Grosso & Hildegunn Kyvik Nordås & Sébastien Miroudot & Frédéric Gonzales & Dorothée Rouzet, 2015. "Services Trade Restrictiveness Index (STRI): Logistics Services," OECD Trade Policy Papers 183, OECD Publishing.
    3. Massimo Geloso Grosso & Frédéric Gonzales & Sébastien Miroudot & Hildegunn Kyvik Nordås & Dorothée Rouzet & Asako Ueno, 2015. "Services Trade Restrictiveness Index (STRI): Scoring and Weighting Methodology," OECD Trade Policy Papers 177, OECD Publishing.
    4. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    5. Sébastien Miroudot & Kätlin Pertel, 2015. "Water in the GATS: Methodology and Results," OECD Trade Policy Papers 185, OECD Publishing.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mathias Hoffmann, 2003. "Cross-country evidence on the link between the level of infrastructure and capital inflows," Applied Economics, Taylor & Francis Journals, vol. 35(5), pages 515-526.
    2. Hoekman, Bernard & Shepherd, Ben, 2021. "Services Trade Policies and Economic Integration: New Evidence for Developing Countries," World Trade Review, Cambridge University Press, vol. 20(1), pages 115-134, February.
    3. Saibene, Giacomo, 2019. "The corporate saving glut," Journal of Macroeconomics, Elsevier, vol. 62(C).
    4. Jean-Louis Warnholz, 2008. "Is investment in Africa low despite high profits?," Economics Series Working Papers WPS/2008-31, University of Oxford, Department of Economics.
    5. Buch, Claudia M. & Heinrich, Ralph P., 1997. "Financing the transition: Risks and benefits of integrating into the international capital market," Kiel Working Papers 818, Kiel Institute for the World Economy (IfW Kiel).
    6. Adam Sadowski & Katarzyna Wąsowska & Iwo Nowak, 2020. "Logistics Development in European Countries: The Case of Poland," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 500-514.
    7. Odili Okwuchukwu, 2015. "Exchange Rate Volatility, Stock Market Performance and Foreign Direct Investment in Nigeria," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 5(2), pages 172-184, April.
    8. Jean-Louis Warnholz, 2008. "Is investment in Africa low despite high profits?," CSAE Working Paper Series 2008-31, Centre for the Study of African Economies, University of Oxford.
    9. Albuquerque, Rui, 2003. "The composition of international capital flows: risk sharing through foreign direct investment," Journal of International Economics, Elsevier, vol. 61(2), pages 353-383, December.
    10. Byrne, Joseph P. & Fiess, Norbert, 2016. "International capital flows to emerging markets: National and global determinants," Journal of International Money and Finance, Elsevier, vol. 61(C), pages 82-100.
    11. Bayraktar, Nihal & Fofack, Hippolyte, 2007. "Specification of investment functions in Sub-Saharan Africa," Policy Research Working Paper Series 4171, The World Bank.
    12. Chaitali Sinha, 2014. "Human Capital and Public Policy," South Asian Journal of Macroeconomics and Public Finance, , vol. 3(1), pages 79-125, June.
    13. Richard J. Nugent, 2019. "Restrictions on Short-Term Capital Inflows and the Response of Direct Investment," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(3), pages 350-383, June.
    14. Camille Reverdy, 2023. "Estimating the general equilibrium effects of services trade liberalization," Review of International Economics, Wiley Blackwell, vol. 31(2), pages 493-521, May.
    15. Ben Abdallah, Skander & Lasserre, Pierre, 2016. "Asset retirement with infinitely repeated alternative replacements: Harvest age and species choice in forestry," Journal of Economic Dynamics and Control, Elsevier, vol. 70(C), pages 144-164.
    16. Oscar Gutiérrez & Francisco Ruiz-Aliseda, 2011. "Real options with unknown-date events," Annals of Finance, Springer, vol. 7(2), pages 171-198, May.
    17. Timothy Erickson & Toni M. Whited, 2000. "Measurement Error and the Relationship between Investment and q," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1027-1057, October.
    18. Arve, Malin & Zwart, Gijsbert, 2023. "Optimal procurement and investment in new technologies under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 147(C).
    19. Shively, Gerald E., 2001. "Price thresholds, price volatility, and the private costs of investment in a developing country grain market," Economic Modelling, Elsevier, vol. 18(3), pages 399-414, August.
    20. Marks, Phillipa & Marks, Brian, 2007. "Spectrum Allocation, Spectrum Commons and Public Goods: the Role of the Market," MPRA Paper 6785, University Library of Munich, Germany.

    More about this item

    Keywords

    Research Methods/ Statistical Methods;

    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:ags:pugtwp:332959. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/gtpurus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.