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Journal of Economic Integration 2015 December;30(4) :680-707.
Do Regional Trade Agreements Increase Bilateral Greenfield Investment?

Badassa Wolteji Chala Hyun-Hoon Lee 

Kangwon National University, Chuncheon, Republic of Korea
Corresponding Author: Hyun-Hoon Lee ,Email:
Copyright ©2015 Journal of Economic Integration
Using bilateral flow data among 25 Organizations for Economic Co-operation and Development and 45 high-income and 95 non-high income countries spanning 2003~2012, we empirically investigate how bilateral greenfield investment responds to common membership in Regional Trade Agreements. Unlike the Regional Trade Agreement-trade nexus, there have been very few studies that investigate the effects of Regional Trade Agreements on bilateral Foreign Direct Investment flows. Our chosen model specifications include Poisson Pseudo-Maximum-Likelihood estimator with bilateral and country-time fixed effects. We find that common membership in Regional Trade Agreements discourages greenfield investment in Organization for Economic Co-operation and Development-high income country pairs whereas they promote nonhigh income country pairs. We also find that lead and lagged Regional Trade Agreement common membership discourages greenfield investment in Organization for Economic Co-operation and Development-high-income pairs while it encourages non-high-income country pairs.

JEL Classification
F21: International Investment; Long Term Capital Movements
F23: Multinational Firms; International Business
G15: International Financial Markets
G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
G34: Mergers; Acquisitions; Restructuring; Corporate Governance
Keywords: Bilateral Greenfield Investment | Regional Trade Agreements | Endogeneity | Gravity
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