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Trading Blocs and Foreign Direct Investment: Endogenous Coalition Structure

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  • Hyejoon Im
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    I examine the relationship between trading blocs and Foreign Direct Investment (FDI). Firms in the model serve foreign markets either by exporting or by setting up plants abroad, which is FDI. I find that countries forming a bloc could attract FDI from non-member countries. However, I show by using a coalition formation game that this FDI-attracting bloc cannot be an equilibrium outcome when multilateralism (i.e., the free trade world) is an option for countries. This result is mainly related to the adverse welfare effects of the tariff-jumping FDI

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    File URL: http://repec.org/esFEAM04/up.12187.1079311238.pdf
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    Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 532.

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    Date of creation: 11 Aug 2004
    Handle: RePEc:ecm:feam04:532
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