REFORM CREATING REGIONAL TRADE AGREEMENTS AND FOREIGN DIRECT INVESTMENT: APPLICATIONS FOR EAST ASIA

Innwon Park () and Soonchan Park

Pacific Economic Review, 2008, vol. 13, issue 5, pages 550-566

Abstract: We estimate the investment creation and diversion effects of RTAs by using an extended gravity equation focusing on domestic reform as a commitment device for RTA membership. As a case study, we estimate the impact of proposed East Asian RTAs on inward FDI. We find that: (i) reform creating RTA membership, larger market size, better skilled labour and lower trade costs all contribute positively and significantly to inward FDI; and (ii) most of the proposed East Asian RTAs promote intra-bloc FDI. In particular, both South-North and North-North RTAs prove to be more preferable membership combinations to South-South RTAs in East Asia. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Asia Pty Ltd

Date: 2008
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Working Paper: Reform-creating regional trade agreements and foreign direct investment: applications for East Asia (2007)
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