Investment discrimination and the proliferation of preferential trade agreements

Leonardo Baccini and Andreas Dür

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The proliferation of bilateral and regional trade agreements has arguably been the main change to the international trading system since the end of the Uruguay Round in the mid-1990s. We argue that investment discrimination plays a major role in this development. Preferential trade agreements can lead to investment discrimination because of tariff differentials on intermediary products and as a result of provisions that relax investment rules for the parties to the agreement. Excluded countries are sensitive to the costs that this investment discrimination imposes on domestic firms and react by signing a trade agreement that aims at leveling the playing field. We test our argument using a spatial econometric model and a newly compiled data set that includes 166 countries and covers a period of eighteen years (1990–2007). Our findings strongly support the argument that investment discrimination is a major driver of the proliferation of trade agreements.

Keywords: preferential trade agreement; foreign direct investment; diffusion; discrimination (search for similar items in EconPapers)
JEL-codes: L81 (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (4)

Published in Journal of Conflict Resolution, June, 2015, 59(4), pp. 617-644. ISSN: 0022-0027

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