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Regional Investment Liberalization and FDI

  • Shawn ARITA
  • TANAKA Kiyoyasu

The proliferation of regional economic integration makes an economic assessment of regional investment liberalization ever more important for policy. This paper conducts a counterfactual policy experiment to simulate the response of heterogeneous multinational firms to a regional decline in investment costs. We find that regional integration yields a welfare gain for integrating economies through the entry of new multinational firms and expansion of offshore production by incumbent multinationals. While the effects of regional integration differ significantly by individual firms, the most productive firms benefit from a variety of regional integrations through intensive-margin growth. Additionally, regional integration could significantly discourage the foreign direct investment (FDI) activity of parent firms headquartered in a country that is not participating in regional integration.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 13088.

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Length: 30 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:eti:dpaper:13088
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  15. Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2007. "Estimating Regional Trade Agreement Effects on FDI in an Interdependent World," Center for Policy Research Working Papers 100, Center for Policy Research, Maxwell School, Syracuse University.
  16. Barrell, Ray & Pain, Nigel, 1999. "Domestic institutions, agglomerations and foreign direct investment in Europe," European Economic Review, Elsevier, vol. 43(4-6), pages 925-934, April.
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