A Simple and Flexible Dynamic Approach to Foreign Direct Investment Growth: Did Canada Benefit From the Free Trade Agreements with the United States?

Peter J. Buckley, Jeremy Clegg, Nicolas Forsans and Kevin Reilly
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Peter J. Buckley: Leeds University Business School
Jeremy Clegg: Leeds University Business School
Nicolas Forsans: Leeds University Business School

International Finance from University Library of Munich, Germany

Abstract: This paper asks a simple question: Did Wilfred Laurier’s dream of free trade with the United States, when it came to fruition in 1989, also have a benefit by increasing foreign direct investment (FDI) into Canada by US multinationals? This paper introduces a dynamic framework, rather than the literature’s traditional static framework, and uses a structural break framework, rather than modelling policy changes as an intercept shift alone. Its conclusions are (a) The signing of the free trade agreements between Canada and the United States increased the responsiveness of growth in the Canadian economy on the US FDI decision by a factor of two. (b) Limited dynamics are found in the form of lagged effect of changes in the real Canadian interest rate. (c) The effect of the change in the exchange rate is static and constant over the whole 1955 to 2000 period and was unaffected by the introduction of free trade between the United States and Canada.

Keywords: Foreign Direct Investment; Distributed Lag Model; Policy as Structural Break. (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2004-07-04
New Economics Papers: this item is included in nep-ifn
Note: Type of Document - doc; pages: 53. In the context of US-Canada Free Trade agreement proposes two empirical innovations in the modelling of foreign investment.
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Citations: View citations in EconPapers (2)

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