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Analysis of the Economic Impact of Investment Provisions in Regional Trade Agreements

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  • Molly Lesher
  • Sébastien Miroudot

Abstract

As countries turn more to regionalism as a means of forwarding co-operation on trade rules and other areas of policymaking, rules on investment are increasingly being incorporated into regional trade agreements (RTAs). We analyse the economic consequences of including investment provisions in trade agreements by creating an index of the extensiveness of investment provisions in RTAs and then using that index in a gravity model framework of trade and investment. The results indicate that investment provisions are positively associated with trade and, to an even greater extent, investment flows. Further, we observe an insignificant effect of bilateral investment treaties on investment flows, suggesting either that substantive investment provisions in RTAs impact trade and FDI flows more profoundly, or that the combination of substantive investment rules and provisions liberalising other parts of the economy jointly impact trade and investment more significantly. The report also includes case studies that confirm that the relationship between investment and other provisions in trade agreements is complex and depends on many factors.

Suggested Citation

  • Molly Lesher & Sébastien Miroudot, 2006. "Analysis of the Economic Impact of Investment Provisions in Regional Trade Agreements," OECD Trade Policy Papers 36, OECD Publishing.
    • Handle: RePEc:oec:traaab:36-en
    DOI: 10.1787/322248021805
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    Cited by:

    1. Mario Larch & Yoto V. Yotov, 2022. "Deep Trade Agreements and FDI in Partial and General Equilibrium: A Structural Estimation Framework," CESifo Working Paper Series 9985, CESifo.
    2. Laget,Edith & Roch,Nadia & Varela,Gonzalo J., 2021. "Deep Trade Agreement and Foreign Direct Investments," Policy Research Working Paper Series 9829, The World Bank.
    3. Soo Yeon Kim, 2021. "Investment commitments in PTAs and MNCS in partner countries," Economics and Politics, Wiley Blackwell, vol. 33(3), pages 415-442, November.
    4. World Bank Group, 2017. "Investment Policy and Promotion Diagnostics and Tools," World Bank Publications - Reports 28281, The World Bank Group.
    5. Sébastien Miroudot & Davide Rigo, 2022. "Multinational production and investment provisions in preferential trade agreements [Intra-industry foreign direct investment]," Journal of Economic Geography, Oxford University Press, vol. 22(6), pages 1275-1308.
    6. Aradhna Aggarwal, 2008. "Regional Economic Integration and FDI in South Asia - Prospects and Problems," Macroeconomics Working Papers 22141, East Asian Bureau of Economic Research.
    7. Jay Dixon & Paul Alexander Haslam, 2016. "Does the Quality of Investment Protection Affect FDI Flows to Developing Countries? Evidence from Latin America," The World Economy, Wiley Blackwell, vol. 39(8), pages 1080-1108, August.
    8. Taganov, B. & Idrisov, G., 2016. "Investment Effects of Preferential Trade Agreements: Quality Matters," Journal of the New Economic Association, New Economic Association, vol. 31(3), pages 40-65.
    9. Mahia, Ramon & de Arce, Rafael & Medina, Eva, 2014. "Assessing the future of a CSP industry in Morocco," Energy Policy, Elsevier, vol. 69(C), pages 586-597.
    10. Duy Vu, 2019. "Reasons not to exit? A survey of the effectiveness and spillover effects of international investment arbitration," European Journal of Law and Economics, Springer, vol. 47(2), pages 291-319, April.
    11. Michael Frenkel & Benedikt Walter, 2019. "Do bilateral investment treaties attract foreign direct investment? The role of international dispute settlement provisions," The World Economy, Wiley Blackwell, vol. 42(5), pages 1316-1342, May.
    12. Michael Frenkel & Benedikt Walter, 2017. "Do Bilateral Investment Treaties Attract Foreign Direct Investment? The Role of International Dispute Settlement Provisions," WHU Working Paper Series - Economics Group 17-08, WHU - Otto Beisheim School of Management.
    13. Duy Vu, 2018. "Reasons not to Exit? A Survey of the Effectiveness and Spillover Effects of International Investment Arbitration," GREDEG Working Papers 2018-35, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    14. Mikic, Mia, 2007. "Preferential trade agreements and agricultural trade liberalization in Asia and the Pacific," MPRA Paper 2947, University Library of Munich, Germany.
    15. Tomasz Iwanow & Colin Kirkpatrick, 2007. "Trade facilitation, regulatory quality and export performance," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(6), pages 735-753.
    16. Im, Hyejoon, 2016. "The effects of regional trade agreements on FDI by its origin and type: Evidence from U.S. multinational enterprises activities," Japan and the World Economy, Elsevier, vol. 39(C), pages 1-11.
    17. Baccini, Leonardo & Dür, Andreas & Elsig, Manfred & Milewicz, Karolina, 2011. "The design of preferential trade agreements: A new dataset in the Making," WTO Staff Working Papers ERSD-2011-10, World Trade Organization (WTO), Economic Research and Statistics Division.
    18. Tristan Kohl & Steven Brakman & Harry Garretsen, 2016. "Do Trade Agreements Stimulate International Trade Differently? Evidence from 296 Trade Agreements," The World Economy, Wiley Blackwell, vol. 39(1), pages 97-131, January.
    19. Mia Mikic, 2007. "Trends in preferential trade liberalization in Asia and the Pacific," STUDIES IN TRADE AND INVESTMENT, in: Studies in Trade and Investment - AGRICULTURAL TRADE - PLANTING THE SEEDS OF REGIONAL LIBERALIZATION IN ASIA, volume 60, pages 1-32, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    20. Muhammad Ullah & Kazuo Inaba, 2014. "Liberalization and FDI Performance: Evidence from ASEAN and SAFTA Member Countries," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 3(1), pages 1-24, December.
    21. Cote, Christine, 2018. "A chilling effect? Are international investment agreements hindering government’s regulatory autonomy?," LSE Research Online Documents on Economics 108406, London School of Economics and Political Science, LSE Library.
    22. Robert Reed & Christina Lira & Lee Byung‐Ki & Junsoo Lee, 2016. "Free Trade Agreements and Foreign Direct Investment: The Role of Endogeneity and Dynamics," Southern Economic Journal, John Wiley & Sons, vol. 83(1), pages 176-201, July.
    23. Mia Mikic, 2007. "Mapping Preferential Trade in Asia and the Pacific: Introducing the Asia-Pacific Trade and Investment," Working Paper Series 407, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    24. Lay, Jann & Tafese, Tevin, 2020. "Promoting private investment to create jobs: A review of the evidence," PEGNet Policy Studies 02/2020, PEGNet - Poverty Reduction, Equity and Growth Network, Kiel Institute for the World Economy (IfW Kiel).

    More about this item

    Keywords

    ANZSCEP; bilateral investment treaty; foreign direct investment; gravity model; investment; NAFTA; regional trade agreements; trade policy;
    All these keywords.

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