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Beyond trade : the impact of preferential trade agreements on foreign direct investment inflows

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  • Medvedev, Denis

Abstract

The author investigates the effects of preferential trade agreements (PTAs) on the net foreign direct investment (FDI) inflows of member countries using a comprehensive database of PTAs in a panel setting. He finds that PTA membership is associated with a positive change in net FDI inflows, and the FDI gains are increasing in the market size of the PTA partners and their proximity to the host country. The author identifies several different channels through which preferential trade liberalization may affect FDI, and confirms that both threshold effects (signing the agreement) and market size effects (joining a larger and faster-growing common market) are important determinants of net FDI inflows, although the latter seem to dominate. The estimated relationship is largely driven by North-South PTAs, and is most pronounced in the late 1990s and early 2000s, the period when the majority of"deep integration"PTAs had been advanced.

Suggested Citation

  • Medvedev, Denis, 2006. "Beyond trade : the impact of preferential trade agreements on foreign direct investment inflows," Policy Research Working Paper Series 4065, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4065
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    Cited by:

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    2. Hazel Parcon, 2008. "Disaggregating PTAs at the Role of International Division of Labor on PTA Formation," Working Papers 200806, University of Hawaii at Manoa, Department of Economics.
    3. Nagesh Kumar, 2007. "Regional Economic Integration, Foreign Direct Investment and Efficiency-Seeking Industrial Restructuring in Asia : The Case of India," Macroeconomics Working Papers 22110, East Asian Bureau of Economic Research.
    4. Oliver Morrissey, 2008. "Investment Provisions in Regional Integration Agreements for Developing Countries," Discussion Papers 08/06, University of Nottingham, CREDIT.
    5. Yap, Josef T. & Aldaba, Rafaelita M., 2009. "Investment and Capital Flows: Implications of the ASEAN Economic Community," Discussion Papers DP 2009-01, Philippine Institute for Development Studies.
    6. Francisco Callado-Muñoz & Jana Hromcová & Natalia Utrero-González, 2014. "Openness and Technology Diffusion in Payment Systems: The Case of NAFTA," Computational Economics, Springer;Society for Computational Economics, vol. 43(4), pages 497-519, April.

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    Keywords

    Free Trade; Trade and Regional Integration; Trade Law; Foreign Direct Investment; Economic Theory&Research;
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