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Trading Blocs and Foreign Direct Investment: Endogenous Coalition Structure

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  • Hyejoon Im

Abstract

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

Suggested Citation

  • Hyejoon Im, 2004. "Trading Blocs and Foreign Direct Investment: Endogenous Coalition Structure," Econometric Society 2004 Far Eastern Meetings 532, Econometric Society.
    • Handle: RePEc:ecm:feam04:532
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    More about this item

    Keywords

    trading blocs; multinational corporations; FDI; coalition formation game;
    All these keywords.

    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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