IDEAS home Printed from https://ideas.repec.org/a/bla/worlde/v42y2019i3p759-784.html
   My bibliography  Save this article

Is FTA/EPA effective for a developing country to attract FDI? The knowledge‐capital model revisited

Author

Listed:
  • Kazuhiko Oyamada

Abstract

To prepare an answer to the question of how a developing country can attract foreign direct investment (FDI), this paper explored the factors and policies that may help bring FDI into a developing country by utilising an extended version of the knowledge‐capital model. With a special focus on the effects of a free trade agreement (FTA) or an economic partnership agreement (EPA) between a pair of market and non‐market countries, simulations with the model revealed the following: (i) although FTA/EPA generally tends to increase FDI to a developing country, the possibility of improving welfare through increased demand for skilled and unskilled labour decreases as the size of the country grows; (ii) a developing country may suffer severe welfare losses through FTA/EPA if the availability of skilled labour is extremely limited; and (iii) a developing country can enhance welfare gains from a FTA, and it is even possible to recover the welfare effects from negative to positive, by making the arrangement an EPA.

Suggested Citation

  • Kazuhiko Oyamada, 2019. "Is FTA/EPA effective for a developing country to attract FDI? The knowledge‐capital model revisited," The World Economy, Wiley Blackwell, vol. 42(3), pages 759-784, March.
    • Handle: RePEc:bla:worlde:v:42:y:2019:i:3:p:759-784
    DOI: 10.1111/twec.12738
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/twec.12738
    Download Restriction: no
    File URL: https://libkey.io/10.1111/twec.12738?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, April.
    2. Grossman, Gene M. & Helpman, Elhanan & Szeidl, Adam, 2006. "Optimal integration strategies for the multinational firm," Journal of International Economics, Elsevier, vol. 70(1), pages 216-238, September.
    3. Zhang, Kevin Honglin & Markusen, James R., 1999. "Vertical multinationals and host-country characteristics," Journal of Development Economics, Elsevier, vol. 59(2), pages 233-252, August.
    4. Yeaple, Stephen Ross, 2003. "The complex integration strategies of multinationals and cross country dependencies in the structure of foreign direct investment," Journal of International Economics, Elsevier, vol. 60(2), pages 293-314, August.
    5. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc.
    6. Tadashi Ito, 2013. "Export-Platform Foreign Direct Investment: Theory and Evidence," The World Economy, Wiley Blackwell, vol. 36(5), pages 563-581, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Oyamada, Kazuhiko, 2020. "How does BREXIT affect production patterns of multinational enterprises?," Journal of Policy Modeling, Elsevier, vol. 42(1), pages 1-19.
    2. Anh T. N. Nguyen & Andrzej Cieślik, 2021. "Determinants of foreign direct investment from Europe to Asia," The World Economy, Wiley Blackwell, vol. 44(6), pages 1842-1858, June.
    3. Adolfo Maza & Paula Gutiérrez‐Portilla & José Villaverde, 2020. "On the drivers of UK direct investment in the Spanish regions: A spatial Durbin approach," Growth and Change, Wiley Blackwell, vol. 51(2), pages 646-675, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Oyamada, Kazuhiko, 2017. "Production patterns of multinational enterprises: the knowledge-capital model revisited," IDE Discussion Papers 674, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    2. Oyamada, Kazuhiko, 2016. "Production Patterns of Multinational Enterprises: The Knowledge-Capital Model Revisited," Conference papers 332676, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Oyamada, Kazuhiko & Uchida, Yoko, 2011. "Domestic, vertical, and horizontal multinationals : a general equilibrium approach using the "knowledge capital model"," IDE Discussion Papers 290, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    4. Oyamada, Kazuhiko & Uchida, Yoko, 2015. "Is FTA/EPA effective for a developing country to attract FDI? : simulation analysis based on an extended knowledge-capital model," IDE Discussion Papers 517, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    5. Erdey, László, 2004. "A működőtőke-áramlás a telephelyválasztás elméletének tükrében [The flow of operating capital in the light of the theory of location choice]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 472-494.
    6. Peter Egger & Simon Loretz & Michael Pfaffermayr & Hannes Winner, 2006. "Corporate Taxation and Multinational Activity," CESifo Working Paper Series 1773, CESifo.
    7. Uchida, Yoko & Oyamada, Kazuhiko, 2015. "Theory and empirics of Markusen type multinationals," IDE Discussion Papers 516, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    8. Oyamada, Kazuhiko, 2020. "How does BREXIT affect production patterns of multinational enterprises?," Journal of Policy Modeling, Elsevier, vol. 42(1), pages 1-19.
    9. Waldkirch Andreas & Tekin-Koru Ayça, 2010. "North American Integration and Canadian Foreign Direct Investment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-40, August.
    10. Grossman, Gene M. & Helpman, Elhanan & Szeidl, Adam, 2006. "Optimal integration strategies for the multinational firm," Journal of International Economics, Elsevier, vol. 70(1), pages 216-238, September.
    11. Tekin-Koru, Ayca & Waldkirch, Andreas, 2007. "North American Integration and the Location of Foreign Direct Investment," MPRA Paper 5212, University Library of Munich, Germany.
    12. Neary, J. Peter, 2009. "Trade costs and foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 207-218, March.
    13. Fabrice Defever, 2006. "Functional fragmentation and the location of multinational firms in the enlarged Europe," Post-Print halshs-00118808, HAL.
    14. Li, Qiaomin & Scollay, Robert & Maani, Sholeh, 2016. "Effects on China and ASEAN of the ASEAN-China FTA: The FDI perspective," Journal of Asian Economics, Elsevier, vol. 44(C), pages 1-19.
    15. Shawn ARITA & TANAKA Kiyoyasu, 2013. "Regional Investment Liberalization and FDI," Discussion papers 13088, Research Institute of Economy, Trade and Industry (RIETI).
    16. Radovan Kastratović, 2020. "The impact of foreign direct investment on host country exports: A meta‐analysis," The World Economy, Wiley Blackwell, vol. 43(12), pages 3142-3183, December.
    17. Ayça Tekin‐Koru & Andreas Waldkirch, 2010. "North–South Integration and the Location of Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 18(4), pages 696-713, September.
    18. Isabel Faeth, 2009. "Determinants Of Foreign Direct Investment – A Tale Of Nine Theoretical Models," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 165-196, February.
    19. Shiro Armstrong, 2009. "Japanese FDI in China: determinants and performance," Asia Pacific Economic Papers 378, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:worlde:v:42:y:2019:i:3:p:759-784. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0378-5920 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.