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The Impact of Regional Integration on Insider and Outsider FDI

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  • Dorothee J. Feils

    (University of Alberta)

  • Manzur Rahman

    (University of San Diego)

Abstract

We develop hypotheses for the implications of regional economic integration on foreign direct investment (FDI) from insider and outsider countries contingent on member nations’ country-specific characteristics. We find that following regional integration (1) on average there is an increase in inward FDI, and (2) structural determinants such as the host country’s market size, cultural and geographic distances, and institutional efficiency have a significantly different impact than when the host nation was outside the integrated area. Common economic area membership is associated with greater FDI flows, with the larger members gaining more; furthermore, insider FDI is less sensitive to labor cost, whereas the host country’s institutional efficiency is an even more positive determinant of insider FDI.

Suggested Citation

  • Dorothee J. Feils & Manzur Rahman, 2011. "The Impact of Regional Integration on Insider and Outsider FDI," Management International Review, Springer, vol. 51(1), pages 41-63, February.
    • Handle: RePEc:spr:manint:v:51:y:2011:i:1:d:10.1007_s11575-010-0062-z
    DOI: 10.1007/s11575-010-0062-z
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