Effect of regional integration agreement on foreign direct investment: A theoretical perspective

Nimesh Salike ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper looked into inter- relationships between Regional Integration Agreement (RIA) and Foreign Direct Investment (FDI) from theoretical point of view. It tried to figure out the conducts of FDI after the formation of RIA from intra- regional and inter- regional perspective. The theoretical framework was developed from the cross- section tabulation of motives and modes of FDI. It is identified that multinationals have two basic rationales for their motives of investment abroad: tariff- jumping and internalization. Further, they conduct their decision of FDI through two modes: vertical and horizontal FDI. To study the distribution of FDI in individual economy after RIA, the study of “Attractiveness matrix” was carried out. It suggested that the flow of FDI depends upon the consequences of “Environmental change” and “Locational advantage” of the host economies within the region.

Keywords: Regional integration; Tariff- jumping; Internalization; Vertical FDI; Horizontal FDI; Environmental change; Locational advantage (search for similar items in EconPapers)
JEL-codes: F15 F21 F23 (search for similar items in EconPapers)
Date: 2010-06-16
New Economics Papers: this item is included in nep-env
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Citations: View citations in EconPapers (2)

Published in Journal of Business and Behavioral Sciences (JBBS) Number 1.Volume(2010): pp. 211-226

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:31859

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