Beyond Trade : The Impact of Preferential Trade Agreements on Foreign Direct Investment Inflows

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.

Bibliographic Details

Main Author:	Medvedev, Denis
Language:	English en_US
Published:	World Bank, Washington, DC 2006-11
Subjects:	ACCESSION AGREEMENTS, ACCESSION COUNTRIES, AGGREGATE TRADE, AVERAGE TARIFF, AVERAGE TARIFF RATES, AVERAGE TARIFFS, BILATERAL INVESTMENT, BUDGET CONSTRAINTS, CAPITAL FLOWS, CHANGES IN TRADE, COMMON MARKET, COMPETITION DISCIPLINES, COMPETITION POLICY, COMPETITION RULES, COMPETITIVE PRESSURES, CROSS-BORDER FINANCIAL FLOWS, CROSS-COUNTRY ANALYSES, CROSS-COUNTRY REGRESSIONS, CUSTOMS, CUSTOMS UNION, DEVELOPING NATIONS, DIRECT INVESTMENT INFLOWS, DISPUTE SETTLEMENT, DISPUTE SETTLEMENT MECHANISMS, DOMESTIC FIRMS, ECONOMIC GROWTH, ECONOMIC INTEGRATION, ECONOMIES OF SCALE, ELASTICITY, ELIMINATING TARIFFS, EXCHANGE RATE, EXPORTERS, EXPORTS, EXTENDED MARKET, EXTERNAL PROTECTION, EXTERNAL TARIFF, FDI, FINANCIAL MARKETS, FINANCIAL SERVICES, FIRM SIZE, FOREIGN COUNTRY, FOREIGN DIRECT INVESTMENT, FOREIGN INVESTMENT, FOREIGN INVESTORS, FOREIGN MARKETS, FOREIGN OWNERSHIP, FOREIGN OWNERSHIP RESTRICTIONS, FOREIGN SUBSIDIARIES, FREE TRADE, FREE TRADE AGREEMENT, FREE TRADE AGREEMENTS, FREE TRADE AREA, GDP, GENERAL EQUILIBRIUM MODEL, GEOGRAPHIC PROXIMITY, GLOBAL FREE TRADE, GLOBAL LEVEL, GRANGER CAUSALITY, GRAVITY MODEL, GROWTH POTENTIAL, GROWTH RATE, GROWTH RATES, HARMONIZATION, HOST COUNTRIES, HOST COUNTRY, HOST ECONOMY, IMPORTED GOODS, INCOME, INCOME LEVELS, INDUSTRIALIZATION, INDUSTRIALIZED COUNTRIES, INDUSTRY TRADE, INTELLECTUAL PROPERTY, INTELLECTUAL PROPERTY RIGHTS, INTERNAL MARKET, INTERNATIONAL CAPITAL, INTERNATIONAL TRADE, INVESTMENT CLIMATE, INVESTMENT CREATION, INVESTMENT FLOWS, INVESTMENT INFLOWS, INVESTMENT LIBERALIZATION, INVESTMENT PROVISIONS, INVESTOR CONFIDENCE, LIBERALIZATION COMMITMENTS, LOCAL CONTENT, MACROECONOMIC STABILITY, MACROECONOMIC STABILIZATION, MARGINAL EFFECT, MARKET ACCESS, MARKET POWER, MARKET SIZE, MARKET SIZE EFFECTS, MEMBER COUNTRIES, MERCHANDISE TRADE, MERGERS, MFN TARIFFS, MIDDLE EASTERN, MNE, MNES, MULTINATIONAL ENTERPRISES, MUTUAL RECOGNITION, MUTUAL RECOGNITION OF STANDARDS, NATIONAL MARKETS, NATIONAL TREATMENT, NEIGHBORING COUNTRIES, NON-TARIFF BARRIERS, OPEN ECONOMIES, OPENNESS, POLICY REFORMS, POLICY RESEARCH, POLITICAL RISK, PREFERENTIAL ACCESS, PREFERENTIAL AGREEMENT, PREFERENTIAL AGREEMENTS, PREFERENTIAL LIBERALIZATION, PREFERENTIAL TRADE, PREFERENTIAL TRADE AGREEMENTS, PREFERENTIAL TRADE LIBERALIZATION, PRODUCTION PROCESS, PRODUCTION STRUCTURE, REDUCTION OF BARRIERS, REGIONAL AGREEMENTS, REGIONAL INTEGRATION, REGIONAL TRADE, REGIONAL TRADE AGREEMENTS, REGIONALISM, RULES OF ORIGIN, SCALE ECONOMIES, SHALLOW INTEGRATION, TARIFF BARRIERS, TARIFF LEVELS, TARIFF LINES, TARIFF RATES, TECHNOLOGY SPILLOVERS, TELECOMMUNICATIONS, TRADE AGREEMENT, TRADE BALANCE, TRADE BARRIERS, TRADE CREATING, TRADE CREATION, TRADE DIVERSION, TRADE FLOWS, TRADE INTENSITY, TRADE MORE, TRADE OPENNESS, TRADE POLICY, TRADE POLICY VARIABLES, TRADE THEORY, TRADE VOLUMES, TRADING PARTNERS, UNILATERAL LIBERALIZATION, WORLD TRADE,
Online Access:	http://documents.worldbank.org/curated/en/2006/11/7191052/beyond-trade-impact-preferential-trade-agreements-foreign-direct-investment-inflows https://hdl.handle.net/10986/8868
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