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Heterogeneous Effects of Non-tariff Measures on Cross-border Investments: Bilateral Firm-level Analysis

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  • Amat Adarov

    (The Vienna Institute for International Economic Studies, wiiw)

  • Mahdi Ghodsi

    (The Vienna Institute for International Economic Studies, wiiw)

Abstract

We analyse the heterogeneous effects of technical regulations and safety standards embodied in non-tariff measures on foreign direct investment using global firm-level panel data of bilateral cross-border ownership relationships over the period 2008-2018. To this end, we develop a novel measure of time-varying bilateral ad valorem equivalents of sectoral non-tariff measures, which reveals that technical barriers to trade (TBTs) played a much greater role as a trade-inhibiting factor in comparison with import tariffs and sanitary and phytosanitary (SPS) measures over the period 1996-2018, with their relative importance increasing in the post-Great Recession period. Estimations using the Poisson pseudo-maximum likelihood framework reveal the importance of non-tariff measures as a driver of foreign direct investment, with heterogeneous effects observed for the measures imposed by the host and the home country, as well as across sectors and types of non-tariff measures. Among other results, we find that an increase in the stringency of technical barriers to trade imposed by the host country is associated with higher investment in the foreign subsidiaries operating in this country, pointing to the regulatory barrier-jumping motive of foreign direct investment. The effect is much stronger for the multinational corporations operating in the information and communications technology sector.

Suggested Citation

  • Amat Adarov & Mahdi Ghodsi, 2021. "Heterogeneous Effects of Non-tariff Measures on Cross-border Investments: Bilateral Firm-level Analysis," wiiw Working Papers 210, The Vienna Institute for International Economic Studies, wiiw.
    • Handle: RePEc:wii:wpaper:210
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    More about this item

    Keywords

    FDI; non-tariff measures; ad-valorem equivalent of NTMs; TBT; SPS measures; ICT;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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