 Regional Integration and Investment CreationDenise Konan and Jeffrey Heinrich No 199711, Working Papers from University of Hawaii at Manoa, Department of Economics Abstract: Preferential trade liberalization has gained more support in recent years from developed and developing countries, with the former hoping that such liberalization will attract more foreign investment. However, the mechanisms by which FDI inflows might increase (if at all) are poorly understood. This paper presents a model featuring firm and plant level scale economies with free entry and exit. The FDI inflows hoped for are likely only to the extent that multinationals have not already shifted production to the integrating region. Regardless, integration is likely to lead to industry rationalization that could reduce FDI if tariff-jumping was prevalent before liberalization. Commutable general equilibrium simulations confirm the magnification effect of the level of external protection on investment creation or diversion, and suggest that low-protection countries have more investment creation than high-protection countries due to wage differences. Keywords: multinational enterprise; regional integration; preferential trade agreements (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hai:wpaper:199711 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in Working Papers from University of Hawaii at Manoa, Department of Economics Contact information at EDIRC. |
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