Understanding the role of trade agreements in Indonesia’s FDI

Paresh Kumar Narayan, Badri Rath and Ferry Syarifuddin

Journal of Asian Economics, 2022, vol. 82, issue C

Abstract: In this paper, we develop the hypothesis that trade agreements influence foreign direct investment (FDI). We extend the conventional model of FDI determinants to accommodate the role of trade agreements. Fitting Indonesian data to this model, we discover strong evidence that, while both bilateral and multilateral trade agreements positively influence Indonesia’s FDI, multilateral agreements have a larger effect. We further distinguish FDI by sector and find sector-specific trade agreements play an active role: these agreements positively influence FDI in the primary and service sectors, but not in the manufacturing sector. We also find that trade agreements positively influence FDI through the export and total factor productivity channels, and less so through the economic growth channel.

Keywords: FDI; Sector; Bilateral trade agreements; Multilateral trade agreements (search for similar items in EconPapers)
JEL-codes: C32 F21 F53 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:82:y:2022:i:c:s1049007822000884

DOI: 10.1016/j.asieco.2022.101532

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