IDEAS home Printed from https://ideas.repec.org/p/zbw/vfsc17/168071.html
   My bibliography  Save this paper

Trade Liberalization, Growth, and FDI: A Structural Estimation Framework

Author

Listed:
  • Larch, Mario
  • Anderson, James E.
  • Yotov, Yoto V.

Abstract

We develop a structural framework that accounts for and decomposes the relationships between trade, physical capital accumulation, and FDI. As a byproduct, our theory delivers a FDI-gravity system. The FDI-gravity estimates are similar to the corresponding trade indexes, however, we also document some notable differences between them. A counterfactual experiment simulating the effects of trade liberalization between Canada and the EU demonstrates the capabilities of our framework.

Suggested Citation

  • Larch, Mario & Anderson, James E. & Yotov, Yoto V., 2017. "Trade Liberalization, Growth, and FDI: A Structural Estimation Framework," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168071, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc17:168071
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/168071/1/VfS-2017-pid-1996.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Anderson, James & Larch, Mario & Yotov, Yoto, 2015. "Growth and Trade with Frictions: A Structural Estimation Framework," School of Economics Working Paper Series 2015-2, LeBow College of Business, Drexel University.
    2. Broda, Christian & Greenfield, Joshua & Weinstein, David E., 2017. "From groundnuts to globalization: A structural estimate of trade and growth," Research in Economics, Elsevier, vol. 71(4), pages 759-783.
    3. Anderson, James E. & Yotov, Yoto V., 2016. "Terms of trade and global efficiency effects of free trade agreements, 1990–2002," Journal of International Economics, Elsevier, vol. 99(C), pages 279-298.
    4. Robert C. Feenstra & Robert Inklaar & Marcel P. Timmer, 2015. "The Next Generation of the Penn World Table," American Economic Review, American Economic Association, vol. 105(10), pages 3150-3182, October.
    5. Kleibergen, Frank & Paap, Richard, 2006. "Generalized reduced rank tests using the singular value decomposition," Journal of Econometrics, Elsevier, vol. 133(1), pages 97-126, July.
    6. 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.
    7. Romain Wacziarg & Karen Horn Welch, 2008. "Trade Liberalization and Growth: New Evidence," The World Bank Economic Review, World Bank, vol. 22(2), pages 187-231, June.
    8. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    9. Simonovska, Ina & Waugh, Michael E., 2014. "The elasticity of trade: Estimates and evidence," Journal of International Economics, Elsevier, vol. 92(1), pages 34-50.
    10. de Sousa, José, 2012. "The currency union effect on trade is decreasing over time," Economics Letters, Elsevier, vol. 117(3), pages 917-920.
    11. Hercowitz, Zvi & Sampson, Michael, 1991. "Output Growth, the Real Wage, and Employment Fluctuations," American Economic Review, American Economic Association, vol. 81(5), pages 1215-1237, December.
    12. Peter Egger & Sergey K. Nigai, 2016. "World-Trade Growth Accounting," CESifo Working Paper Series 5831, CESifo.
    13. James E. Anderson & Yoto V. Yotov, 2010. "The Changing Incidence of Geography," American Economic Review, American Economic Association, vol. 100(5), pages 2157-2186, December.
    14. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, vol. 87(Jan), pages 49-63.
    15. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, April.
    16. María Pía Olivero & Yoto V. Yotov, 2012. "Dynamic gravity: endogenous country size and asset accumulation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(1), pages 64-92, February.
    17. Joseph Francois & Miriam Manchin & Hanna Norberg & Olga Pindyuk & Patrick Tomberger, 2013. "Reducing Transatlantic Barriers to Trade and Investment: An Economic Assessment," IIDE Discussion Papers 20130401, Institue for International and Development Economics.
    18. van Bergeijk,Peter A. G. & Brakman,Steven (ed.), 2010. "The Gravity Model in International Trade," Cambridge Books, Cambridge University Press, number 9780521196154, September.
    19. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    20. James E. Anderson & Mario Larch & Yoto V. Yotov, 2015. "Estimating General Equilibrium Trade Policy Effects: GE PPML," CESifo Working Paper Series 5592, CESifo.
    21. James E. Anderson & Yoto V. Yotov, 2010. "Specialization: Pro- and Anti-globalizing, 1990-2002," NBER Working Papers 16301, National Bureau of Economic Research, Inc.
    22. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    23. Eicher, Theo S. & Helfman, Lindy & Lenkoski, Alex, 2012. "Robust FDI determinants: Bayesian Model Averaging in the presence of selection bias," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 637-651.
    24. Bergstrand, Jeffrey H. & Egger, Peter, 2007. "A knowledge-and-physical-capital model of international trade flows, foreign direct investment, and multinational enterprises," Journal of International Economics, Elsevier, vol. 73(2), pages 278-308, November.
    25. Delina E. Agnosteva & James E. Anderson & Yoto V. Yotov, 2014. "Intra-national Trade Costs: Measurement and Aggregation," NBER Working Papers 19872, National Bureau of Economic Research, Inc.
    26. Head, Keith & Ries, John, 2008. "FDI as an outcome of the market for corporate control: Theory and evidence," Journal of International Economics, Elsevier, vol. 74(1), pages 2-20, January.
    27. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 317-341.
    28. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
    29. Eckstein, Zvi & Foulides, Costas & Kollintzas, Tryphon, 1996. "On the Many Kinds of Growth: A Note," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 487-496, 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. Docquier, Frédéric & Iftikhar, Zainab, 2019. "Brain drain, informality and inequality: A search-and-matching model for sub-Saharan Africa," Journal of International Economics, Elsevier, vol. 120(C), pages 109-125.
    2. Tobias Zander, 2020. "Does corruption matter for FDI flows in the OECD? A gravity analysis," EIIW Discussion paper disbei280, Universitätsbibliothek Wuppertal, University Library.
    3. Michał Burzyński & Frédéric Docquier & Hillel Rapoport, 2018. "The Changing Structure of Immigration to the OECD: What Welfare Effects on Member Countries?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 66(3), pages 564-601, September.
    4. Narcisse Cha'Ngom & Christoph Deuster & Frédéric Docquier & Joël Machado, 2023. "Selective Migration and Economic Development: A Generalized Approach," LISER Working Paper Series 2023-06, Luxembourg Institute of Socio-Economic Research (LISER).
    5. Zongo, Amara, 2020. "The Impact of Restrictive Measures on Bilateral FDI in OECD Countries," MPRA Paper 101929, University Library of Munich, Germany.
    6. Tobias Zander, 2021. "Does corruption matter for FDI flows in the OECD? A gravity analysis," International Economics and Economic Policy, Springer, vol. 18(2), pages 347-377, May.
    7. Marta Bengoa & Blanca Sanchez-Robles & Yochanan Shachmurove, 2020. "Do Trade and Investment Agreements Promote Foreign Direct Investment within Latin America? Evidence from a Structural Gravity Model," Mathematics, MDPI, vol. 8(11), pages 1-32, October.

    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. Anderson, James E. & Yotov, Yoto V., 2020. "Short run gravity," Journal of International Economics, Elsevier, vol. 126(C).
    2. Piermartini, Roberta & Yotov, Yoto, 2016. "Estimating Trade Policy Effects with Structural Gravity," School of Economics Working Paper Series 2016-10, LeBow College of Business, Drexel University.
    3. Mario Larch & Yoto Yotov, 2017. "On the impact of TTIP in Southeastern and Eastern Europe: A quantitative analysis," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 54-73,74-92.
    4. James E. Anderson & Mario Larch & Yoto V. Yotov, 2015. "Growth and Trade with Frictions: A Structural Estimation Framework," NBER Working Papers 21377, National Bureau of Economic Research, Inc.
    5. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 2, pages 15-78, Edward Elgar Publishing.
    6. Mario Larch & Yoto V. Yotov, 2016. "General Equilibrium Trade Policy Analysis with Structural Gravity," CESifo Working Paper Series 6020, CESifo.
    7. Anderson, James E. & Larch, Mario & Yotov, Yoto V., 2019. "Trade and investment in the global economy: A multi-country dynamic analysis," European Economic Review, Elsevier, vol. 120(C).
    8. Kox, Henk L.M. & Rojas Romasgosa, Hugo, 2019. "Gravity estimations with FDI bilateral data: Potential FDI effects of deep preferential trade agreements," MPRA Paper 96318, University Library of Munich, Germany.
    9. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    10. Benedikt Heid & Mario Larch & Yoto V. Yotov, 2021. "Estimating the effects of non‐discriminatory trade policies within structural gravity models," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 376-409, February.
    11. Anderson, James E. & Borchert, Ingo & Mattoo, Aaditya & Yotov, Yoto V., 2018. "Dark costs, missing data: Shedding some light on services trade," European Economic Review, Elsevier, vol. 105(C), pages 193-214.
    12. Baier, Scott L. & Yotov, Yoto V. & Zylkin, Thomas, 2019. "On the widely differing effects of free trade agreements: Lessons from twenty years of trade integration," Journal of International Economics, Elsevier, vol. 116(C), pages 206-226.
    13. repec:hal:wpspec:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    14. repec:hal:spmain:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    15. repec:spo:wpecon:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    16. Yoto Yotov & Mario Larch & James Anderson, 2015. "Growth and Trade: A Structural Estimation Framework," 2015 Meeting Papers 851, Society for Economic Dynamics.
    17. repec:spo:wpmain:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    18. Anderson, James E. & Yotov, Yoto V., 2016. "Terms of trade and global efficiency effects of free trade agreements, 1990–2002," Journal of International Economics, Elsevier, vol. 99(C), pages 279-298.
    19. Anderson, James E. & Larch, Mario & Yotov, Yoto, 2017. "Trade and Investment in the Global Economy," School of Economics Working Paper Series 2017-9, LeBow College of Business, Drexel University.
    20. Zongo, Amara, 2021. "The impact of services trade restrictiveness on food trade," International Economics, Elsevier, vol. 166(C), pages 71-94.
    21. Anderson, James E. & Vesselovsky, Mykyta & Yotov, Yoto V., 2016. "Gravity with scale effects," Journal of International Economics, Elsevier, vol. 100(C), pages 174-193.
    22. Adu, Raymond & Litsios, Ioannis & Baimbridge, Mark, 2022. "ECOWAS single currency: Prospective effects on trade," Journal of International Money and Finance, Elsevier, vol. 126(C).
    23. Peter H. Egger & Mario Larch & Yoto V. Yotov, 2020. "Gravity-Model Estimation with Time-Interval Data: Revisiting the Impact of Free Trade Agreements," CESifo Working Paper Series 8553, CESifo.
    24. Henk L. M. Kox & Hugo Rojas‐Romagosa, 2020. "How trade and investment agreements affect bilateral foreign direct investment: Results from a structural gravity model," The World Economy, Wiley Blackwell, vol. 43(12), December.

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:zbw:vfsc17:168071. 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: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/vfsocea.html .

    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.