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Deep Trade Agreements and FDI in Partial and General Equilibrium: A Structural Estimation Framework

Author

Listed:
  • Mario Larch

    (University of Bayreuth)

  • Yoto Yotov

    (Drexel University)

Abstract

We quantify the relationships between deep trade liberalization and foreign direct investment (FDI). To this end, we focus on the effects of Deep Trade Agreements (DTAs), and we rely on a structural framework that simultaneously enables us to (i) estimate the direct impact of DTAs on FDI, (ii) translate the partial DTA estimates into general equilibrium effects on FDI; and (iii) obtain partial DTA effects on trade and quantify the impact of DTAs on FDI through trade. We obtain sizable, positive, and statistically significant estimates of the effects of DTAs on both trade and FDI. A counterfactual analysis suggests that, in combination through direct and indirect channels, DTAs have contributed to a large but very asymmetric increase in inward vs. outward FDI.

Suggested Citation

  • Mario Larch & Yoto Yotov, 2022. "Deep Trade Agreements and FDI in Partial and General Equilibrium: A Structural Estimation Framework," School of Economics Working Paper Series 2022-7, LeBow College of Business, Drexel University.
    • Handle: RePEc:ris:drxlwp:2022_007
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    Cited by:

    1. Jeffrey H. Bergstrand & Jordi Paniagua, 2024. "Do Deep Trade Agreements’ Provisions Actually Increase – or Decrease – Trade and/or FDI?," CESifo Working Paper Series 11526, CESifo.
    2. Tamara Gurevich & Peter R. Herman & Farid Toubal & Y. Yotov, 2024. "The Domestic and International Common Language Database," Working Papers hal-04682625, HAL.
    3. Guohua Chen & Jianrui Zhou & Cheyuan Liu & Fangzhou Liu & Chunyu Zhang & Yuhan Su, 2025. "The Impact of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and Regional Comprehensive Economic Partnership on the Global Value Chain of Manufacturing," Sustainability, MDPI, vol. 17(17), pages 1-23, September.
    4. Moder, Isabella & Spital, Tajda, 2025. "The protectionist gamble: How tariffs shape greenfield foreign direct investment," Working Paper Series 3144, European Central Bank.
    5. Ridwan Ah Sheikh & Sunil Kanwar, 2024. "Do Deep Trade Agreements with Intellectual Property Provisions Actually Increase International Trade?," Working papers 344, Centre for Development Economics, Delhi School of Economics.

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    Keywords

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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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