Regional Integration and Investment Creation
Preferential trade liberalization has gained more support in recent years from developed and developing countries, with the former hoping that such liberalization will attract more foreign investment. However, the mechanisms by which FDI inflows might increase (if at all) are poorly understood. This paper presents a model featuring firm and plant level scale economies with free entry and exit. The FDI inflows hoped for are likely only to the extent that multinationals have not already shifted production to the integrating region. Regardless, integration is likely to lead to industry rationalization that could reduce FDI if tariff-jumping was prevalent before liberalization. Commutable general equilibrium simulations confirm the magnification effect of the level of external protection on investment creation or diversion, and suggest that low-protection countries have more investment creation than high-protection countries due to wage differences.
|Date of creation:||1997|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.economics.hawaii.edu/
More information through EDIRC
|Order Information:|| Web: http://www.economics.hawaii.edu/research/working.html Email: |
When requesting a correction, please mention this item's handle: RePEc:hai:wpaper:199711. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Web Technician)
If references are entirely missing, you can add them using this form.