Investment commitments in PTAs and MNCS in partner countries

Soo Yeon Kim

Economics and Politics, 2021, vol. 33, issue 3, 415-442

Abstract: This paper analyzes the impact of investment commitments in preferential trade agreements (PTAs) on multinational firms' production networks. The analysis tests the hypothesis that strong investment commitments in PTAs encourage multinational firms to locate affiliates in agreement partners. Agreement countries are desirable locations for MNCS' production networks because PTAs reduce the costs of information concerning the host countries, provide a common regulatory framework for investment by way of the PTA, and embed investment in a larger package of trade liberalization that facilitates cross‐border movement of intermediate goods. The study employs an original dataset of investment provisions in PTAs that measures the liberalization, protection, and integration in investment activities, and another on the location of multinational firms' subsidiaries. An analysis of 317 PTAs supports the main hypothesis: strong investment commitments in PTAs are associated with a higher number of common MNC affiliates among partner countries, controlling for a host of political and economic factors. This paper contributes to the scholarship on multinational firms' behavior in the post‐agreement phase of PTAs and more broadly on the mapping of trade agreement provisions in key areas of global production.

Date: 2021
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