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Effects of regional integration on FDI: An empirical approach

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  • Kreinin, Mordechai E.
  • Plummer, Michael G.

Abstract

This study uses an augmented gravity model to capture the effect of regional economic integration on Foreign Direct Investment (FDI) flows in the cases of the EU, NAFTA, MERCOSUR, and ASEAN. Three important conclusions emerge: (i) regional integration has had a positive and significant effect on FDI, which is a combination of investment creation and diversion; (ii) investment diversion does occur in a significant number of cases, and hence it is a legitimate cause for concern, especially among developing countries that are not part of a regional grouping with at least one developed country; and (iii) FDI acts as a substitute for trade in a significant number of cases, although in some cases, it complements trade.

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  • Kreinin, Mordechai E. & Plummer, Michael G., 2008. "Effects of regional integration on FDI: An empirical approach," Journal of Asian Economics, Elsevier, vol. 19(5-6), pages 447-454.
    • Handle: RePEc:eee:asieco:v:19:y:2008:i:5-6:p:447-454
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    1. Sudsawasd, Sasatra, 2010. "An empirical assessment of the relationship between competition policy and investment," Journal of Asian Economics, Elsevier, vol. 21(5), pages 466-475, October.
    2. Barrell, Ray & Nahhas, Abdulkader, 2018. "Economic integration and bilateral FDI stocks: the impacts of NAFTA and the EU," LSE Research Online Documents on Economics 90372, London School of Economics and Political Science, LSE Library.
    3. Doytch, Nadia, 2015. "Sectoral FDI cycles in South and East Asia," Journal of Asian Economics, Elsevier, vol. 36(C), pages 24-33.
    4. Mariam Camarero & Estrella Gómez-Herrera & Cecilio Tamarit, 2018. "New Evidence on Trade and FDI: how Large is the Euro Effect?," Open Economies Review, Springer, vol. 29(2), pages 451-467, April.
    5. Cuyvers, Ludo & Soeng, Reth & Plasmans, Joseph & Van Den Bulcke, Daniel, 2011. "Determinants of foreign direct investment in Cambodia," Journal of Asian Economics, Elsevier, vol. 22(3), pages 222-234, June.
    6. Guanyi Leu, 2011. "ASEAN’s Preferential Trade Agreements (PTA) Strategy," Journal of Current Southeast Asian Affairs, Institute of Asian Studies, GIGA German Institute of Global and Area Studies, Hamburg, vol. 30(2), pages 31-64.
    7. Bassem Kahouli & Anis Omri & Anissa Chaibi, 2014. "Environmental Regulations, Trade, and Foreign Direct Investment: Evidence from Gravity Equations," Working Papers 2014-189, Department of Research, Ipag Business School.
    8. Fathi Abid & Slah Bahloul, 2010. "Selected MENA Countries’ Attractiveness to G7 Investors," Working Papers 531, Economic Research Forum, revised 07 Jan 2010.
    9. Kahouli, Bassem & Omri, Anis, 2017. "Foreign direct investment, foreign trade and environment: New evidence from simultaneous-equation system of gravity models," Research in International Business and Finance, Elsevier, vol. 42(C), pages 353-364.
    10. Jay Dixon & Paul Alexander Haslam, 2016. "Does the Quality of Investment Protection Affect FDI Flows to Developing Countries? Evidence from Latin America," The World Economy, Wiley Blackwell, vol. 39(8), pages 1080-1108, August.
    11. Adam Marszk, 2014. "Economic Integration and Foreign Direct Investment: Review of Main Theoretical Concepts," Entrepreneurial Business and Economics Review, Centre for Strategic and International Entrepreneurship at the Cracow University of Economics., vol. 2(3), pages 79-89.
    12. Taganov, B. & Idrisov, G., 2016. "Investment Effects of Preferential Trade Agreements: Quality Matters," Journal of the New Economic Association, New Economic Association, vol. 31(3), pages 40-65.
    13. Krishna P. Timsina & Richard J. Culas, 2020. "Impacts of Australia’s free trade agreements on trade in agricultural products: an aggregative and disaggregative analysis," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 64(3), pages 889-919, July.
    14. Kong, Qunxi & Chen, Afei & Shen, Chenrong & Wong, Zoey, 2021. "Has the Belt and Road Initiative improved the quality of economic growth in China's cities?," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 870-883.
    15. Nathapornpan Piyaareekul Uttama, 2021. "International Investment Agreements Provisions and Foreign Direct Investment Flows in the Regional Comprehensive Economic Partnership Region," Economies, MDPI, vol. 9(1), pages 1-23, March.

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