Working Paper: CEPR ID: DP1659
Authors: Magnus Blomstrom; Ari Kokko
Abstract: This paper deals with the investment effects of regional integration agreements and discusses how such arrangements may affect inward and outward foreign direct investment (FDI) flows in the integrating region. After setting up a conceptual framework for the analysis, we provide three studies focusing on different kinds of regional integration: North-North integration (Canada joining CUSFTA), North-South integration (Mexico?s accession to NAFTA), and South-South integration (MERCOSUR). The main conclusion of the study is that the responses to an integration agreement largely depend on the environmental change brought about by the agreement and the locational advantages of the participating countries and industries. Moreover, the findings suggest that the most positive impact on FDI has occurred when regional integration agreements have coincided with domestic liberalization and macroeconomic stabilization in the member countries.
Keywords: regional integration; FDI; multinational corporations; CUSFTA; NAFTA; MERCOSUR
JEL Codes: F15; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Environmental changes (Q54) | FDI inflows (F21) |
| Locational advantages (R32) | FDI inflows (F21) |
| RIAs + Domestic liberalization (F69) | FDI inflows (F21) |
| NAFTA (F15) | FDI inflows into Mexico (F21) |
| CUSFTA (F15) | FDI inflows into Canada (F64) |
| MERCOSUR (F15) | Investment expansion (E22) |
| Locational advantages (Argentina and Brazil) (N96) | Investment expansion (E22) |
| Locational advantages (Paraguay and Uruguay) (N96) | Investment expansion (E22) |