Regional Intergration, Foreign Investment, And Optimal Trade And Investment Policies

Tsai Pan-Long

International Economic Journal, 1999, vol. 13, issue 1, 1-18

Abstract: Using an international duopoly model, this paper first investigates the impacts of the formation of a North-South regional intergration (RI) on both the developed member country and the developing nonmember country. The RI is shown indeed to have trade diversion effect and to depress the welfare of the nonmember country. It then derives explicitly the conditions under which the nonmember exporting firm will make FDI into the economic region after its formation. The optimal trade and investment policies of the nonmember country after the RI are shown to be export subsidies no matter there is FDI or not. Moreover, in the case with FDI, the nonmember country should subsidize the export and the FDI of its firms equally. [F21]

Date: 1999
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DOI: 10.1080/10168739900000025

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