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How Do Technical Barriers to Trade Affect Foreign Direct Investment?

Mohammad Mahdi Ghodsi ()

No 160, wiiw Working Papers from The Vienna Institute for International Economic Studies, wiiw

Abstract: Evidence from Central, East and Southeast Europe Trade liberalisation and the EU enlargement in the past two decades allowed European multinational enterprises (MNEs) to benefit from production fragmentation in Central, East and Southeast Europe (CESEE). Recent studies show that market regulations and standards that are embedded within Technical Barriers to Trade (TBTs) might not necessarily hamper trade but improve the quality of products, production procedures, and market efficiencies. However, complying with the regulations embedded in the TBTs imposed by a host country might be costly enough to discourage MNEs from investing there. Furthermore, MNEs from countries that impose more regulations and standards might be more capable of investing abroad. This article analyses how TBTs imposed by both home and host countries affect inward FDI stocks in the CESEE countries during the period 1996-2016. The results suggest that Specific Trade Concerns (STCs) raised on trade-restrictive TBTs imposed by CESEE countries induce ‘tariff jumping’ motives of investment to these countries, while regular TBTs as indications of positive externalities and efficiency gains at home discourage outward FDI. Besides, FDI stocks by non-EU28 countries are found to be stimulated by regular quality TBTs imposed by the host economies.

Keywords: CESEE; FDI; MNE; quality NTM; TBT; TBT STC; regulations and standards; tariff jumping (search for similar items in EconPapers)
JEL-codes: F13 F14 F21 F23 (search for similar items in EconPapers)
Pages: 25 pages including 5 Tables
Date: 2019-01
New Economics Papers: this item is included in nep-eec and nep-int
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