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How do technical barriers to trade affect foreign direct investment? Tariff jumping versus regulation haven hypotheses

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  • Ghodsi, Mahdi

Abstract

Trade liberalisation and the EU enlargement over the past two decades has allowed European multinational enterprises (MNEs) to benefit from production fragmentation in Central, East and Southeast Europe (CESEE). Technical Barriers to Trade (TBTs) might induce costs of certification, inspection and compliance at the border that encourage MNEs to undertake foreign direct investment (FDI) in the host market instead of exporting to that market. However, overregulation and stringency of standards that are embedded within these TBTs might discourage FDI in a given market. The former shows the intuition behind ‘tariff jumping’ motives, while the latter is based on the ‘regulation haven hypothesis’. These two opposing hypotheses are tested in this article by analysing the impact of TBTs imposed by both home and host countries on inward FDI stocks in the CESEE host countries during the period 1996–2016. The results hint at ‘tariff jumping’ motives of FDI in these countries. This is more evident for discriminative TBTs imposed by the host economy on which the home country raised Specific Trade Concerns (STC) at the World Trade Organization (WTO).

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  • Ghodsi, Mahdi, 2020. "How do technical barriers to trade affect foreign direct investment? Tariff jumping versus regulation haven hypotheses," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 269-278.
    • Handle: RePEc:eee:streco:v:52:y:2020:i:c:p:269-278
    DOI: 10.1016/j.strueco.2019.11.008
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    3. Syarifuddin, Ferry, 2020. "The Dynamics of Foreign Direct Investment and Exchange Rates: An Interconnection Approach in ASEAN," MPRA Paper 104596, University Library of Munich, Germany.
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    More about this item

    Keywords

    CESEE; FDI; MNE; Quality NTM; TBT; TBT STC; Tariff jumping; Regulation haven;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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