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Journal of Economic Integration 2000 December;15(4) :565-584.
Foreign Direct Investment and Host-Country Trading Blocs

Jeff Heinrich Denise Eby Konan 

University of Wisconsin-Whitewater
University of Hawaii
Copyright ©2000 Journal of Economic Integration
We consider the impact of preferential trade agreements (PTAs) on horizontal foreign direct investment (FDI) coming from parent countries outside the PTA. While easier access to a larger market due to a PTA may justify new FDI, preexisting investments may be rationalized as firms concentrate production in a single plant in the PTA. Which effect dominates depends on the extent of pre-PTA tariff jumping. The number of firms in the industry and non-PTA welfare may rise or fall. PTA welfare increases regardless of PTA-induced changes in inward FDI.
Keywords: Multinational Enterprise | Foreign Direct Investment | Regional Integration | Preferential Trade Agreements
1. Blomström, M., and A. Kokko (1997), "Regional Integration and Foreign Direct Investment: A Conceptual Framework and Three Cases," World Bank Policy Research Working Paper #1750.
2. Robson, P., and I. Wooton (1993), "The Transnational Enterprise and Regional Economic Integration," Journal of Common Market Studies 31, 71-90.
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