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Regional Integration and Foreign Direct Investment

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  • Blomström, Magnus
  • Kokko, Ari

Abstract

This paper deals with the investment effects of regional integration agreements and discusses how such arrangements may affect inward and outward foreign direct investment (FDI) flows in the integrating region. After setting up a conceptual framework for the analysis, we provide three studies focusing on different kinds of regional integration: North-North integration (Canada joining CUSFTA), North-South integration (Mexico’s accession to NAFTA), and South-South integration (MERCOSUR). The main conclusion of the study is that the responses to an integration agreement largely depend on the environmental change brought about by the agreement and the locational advantages of the participating countries and industries. Moreover, the findings suggest that the most positive impact on FDI has occurred when regional integration agreements have coincided with domestic liberalization and macroeconomic stabilization in the member countries.

Suggested Citation

  • Blomström, Magnus & Kokko, Ari, 1997. "Regional Integration and Foreign Direct Investment," CEPR Discussion Papers 1659, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1659
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    References listed on IDEAS

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    1. Smith, Alasdair, 1992. "Measuring the effects of '1992'," Discussion Papers in Economics 07/92, Department of Economics, University of Sussex.
    2. Stevens, Guy V. G. & Lipsey, Robert E., 1992. "Interactions between domestic and foreign investment," Journal of International Money and Finance, Elsevier, vol. 11(1), pages 40-62, February.
    3. Robert E. Lipsey & Magnus Blomstrom & Eric D. Ramstetter, 1998. "Internationalized Production in World Output," NBER Chapters,in: Geography and Ownership as Bases for Economic Accounting, pages 83-138 National Bureau of Economic Research, Inc.
    4. Brecher, Richard A. & Diaz Alejandro, Carlos F., 1977. "Tariffs, foreign capital and immiserizing growth," Journal of International Economics, Elsevier, vol. 7(4), pages 317-322, November.
    5. V.N. Balasubramanyam & David Greenaway, 1992. "Economic Integration and Foreign Direct Investment: Japanese Investment in the EC," Journal of Common Market Studies, Wiley Blackwell, vol. 30(2), pages 175-194, June.
    6. Kokko, Ari, 1994. "Technology, market characteristics, and spillovers," Journal of Development Economics, Elsevier, vol. 43(2), pages 279-293, April.
    7. Puga, Diego & Venables, Anthony J, 1998. "Trading Arrangements and Industrial Development," World Bank Economic Review, World Bank Group, vol. 12(2), pages 221-249, May.
    8. Smith, Alasdair & Venables, Anthony J., 1988. "Completing the internal market in the European Community : Some industry simulations," European Economic Review, Elsevier, vol. 32(7), pages 1501-1525, September.
    9. Raquel Fernandez, 1997. "Returns to Regionalism: An Evaluation of Non-Traditional Gains from RTAs," NBER Working Papers 5970, National Bureau of Economic Research, Inc.
    10. George N. Yannopoulos, 1990. "Foreign Direct Investment and European Integration: The Evidence from the Formative Years of the European Community," Journal of Common Market Studies, Wiley Blackwell, vol. 28(3), pages 235-259, March.
    11. Gary Clyde Hufbauer & Jeffrey J. Schott, 1993. "NAFTA: An Assessment, Revised Edition," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 70, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    FDI; MNCs; Regional Integration;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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