The Impact of South-South Trade Agreements on FDI

Mondher Cherif and Christian Dreger

No 1461, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: The integration of emerging markets into the global economy is heavily promoted by foreign direct investment (FDI) inflows. Within the factors driving the location of FDI, regional trade agreements (RTAs) become increasingly relevant for emerging markets. We explore the impact of South-South trade agreements on FDI by dynamic panel models. The MENA countries are compared to the better performing regions in Latin America and Southeast Asia. Several striking results emerge from the analysis. First, agglomeration effects are weaker for the MENA region. Second, the impact of the RTA is important. However, RTAs do not generally rise the attractiveness of the region for foreign investors, as the effect interacts with business-friendly regulations. Third, financial deepening in the host country is a crucial factor, often again in combination with the institutional framework. Furthermore, institutional conditions may not be relevant per se, but only in terms of its interaction with the macroeconomic determinants

Keywords: MENA Region; foreign investment; South-South trade agreements (search for similar items in EconPapers)
JEL-codes: E22 F15 F21 F63 (search for similar items in EconPapers)
Pages: 21 p.
Date: 2015
New Economics Papers: this item is included in nep-ara, nep-int and nep-sea
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