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Effect of regional integration agreement on foreign direct investment : A theoretical perspective

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  • Salike, Nimesh

Abstract

This paper looked into inter- relationships between Regional Integration Agreement (RIA) and Foreign Direct Investment (FDI) from theoretical point of view. It tried to figure out the conducts of FDI after the formation of RIA from intra- regional and inter- regional perspective. The theoretical framework was developed from the cross- section tabulation of motives and modes of FDI. It is identified that multinationals have two basic rationales for their motives of investment abroad: tariff- jumping and internalization. Further, they conduct their decision of FDI through two modes: vertical and horizontal FDI. To study the distribution of FDI in individual economy after RIA, the study of “Attractiveness matrix” was carried out. It suggested that the flow of FDI depends upon the consequences of “Environmental change” and “Locational advantage” of the host economies within the region.

Suggested Citation

  • Salike, Nimesh, 2010. "Effect of regional integration agreement on foreign direct investment : A theoretical perspective," MPRA Paper 31859, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:31859
    as

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    File URL: https://mpra.ub.uni-muenchen.de/31859/1/MPRA_paper_31859.pdf
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    References listed on IDEAS

    as
    1. Blomström, Magnus & Kokko, Ari, 1997. "Regional Integration and Foreign Direct Investment," CEPR Discussion Papers 1659, C.E.P.R. Discussion Papers.
    2. Eduardo Levy Yeyati & Christian Daude & Ernesto Stein, 2003. "Regional Integration and the Location of FDI," Business School Working Papers doce, Universidad Torcuato Di Tella.
    3. David F. Bradford, 1978. "Tax Neutrality and the Investment Tax Credit," NBER Working Papers 0269, National Bureau of Economic Research, Inc.
    4. Urata, Shujiro & Kawai, Hiroki, 2000. "The Determinants of the Location of Foreign Direct Investment by Japanese Small and Medium-Sized Enterprises," Small Business Economics, Springer, vol. 15(2), pages 79-103, September.
    5. Blomstrom, Magnus & Kokko, Ari, 1997. "Regional integration and foreign direct investment : a conceptual framework and three cases," Policy Research Working Paper Series 1750, The World Bank.
    6. Jürgen von Hagen, 2009. "International Capital Flows and World Output Gains," 2009 Meeting Papers 311, Society for Economic Dynamics.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Regional integration; Tariff- jumping; Internalization; Vertical FDI; Horizontal FDI; Environmental change; Locational advantage;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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