North American Integration and Canadian Foreign Direct Investment

Andreas Waldkirch and Ayça Tekin-Koru

MPRA Paper from University Library of Munich, Germany

Abstract: We investigate how economic integration in North America has altered the pattern of foreign direct investment (FDI) to and from Canada. The theoretical analysis suggests that while the Canadian-U.S. free trade agreement should generate less FDI, the addition of Mexico in the North American Free Trade Agreement (NAFTA) produces the opposite effect. The fall in trade costs results in investment diversion from the U.S. and Canada, yet lower fixed costs may increase FDI even in those countries via an increased incentive to locate production facilities abroad rather than only domestically. Using a difference-in-differences estimator, we find that U.S. FDI in Canada as well as Canadian FDI in the U.S. have expanded disproportionately since NAFTA, suggesting that the latter effect dominates.

Keywords: Foreign Direct Investment; Multinationals; NAFTA; Canada (search for similar items in EconPapers)
JEL-codes: F15 F21 F23 (search for similar items in EconPapers)
Date: 2010-02
New Economics Papers: this item is included in nep-ifn and nep-int
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Related works:
Journal Article: North American Integration and Canadian Foreign Direct Investment (2010)
Working Paper: North American Integration and Canadian Foreign Direct Investment (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:21482

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