Free Trade Agreements and Foreign Direct Investment: The Role of Endogeneity and Dynamics

This article studies the impact of Free Trade Agreements (FTA) on outbound foreign direct investment (FDI). From one perspective, FTA may promote FDI since FTA aim to promote economic activity between countries. However, lower trade barriers may lower the incentive of firms to conduct FDI. Therefore...

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Veröffentlicht in:	Southern economic journal 2016-07, Vol.83 (1), p.176-201
Hauptverfasser:	Reed, Robert, Lira, Christina, Byung-Ki, Lee, Lee, Junsoo
Format:	Artikel
Sprache:	eng
Schlagworte:	C52 F13 Foreign direct investment Foreign investment Free trade Trade agreements Trade barriers
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container_title	Southern economic journal
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creator	Reed, Robert Lira, Christina Byung-Ki, Lee Lee, Junsoo
description	This article studies the impact of Free Trade Agreements (FTA) on outbound foreign direct investment (FDI). From one perspective, FTA may promote FDI since FTA aim to promote economic activity between countries. However, lower trade barriers may lower the incentive of firms to conduct FDI. Therefore, the net impact is an empirical question. Using a panel of countries for the years 1990–2006, this article effectively controls for participation in an FTA when analyzing the impact on outbound FDI. The lengthy time series also allows us to examine effectively the dynamic nature of the relationship. Failing to account for endogeneity and dynamics would likely generate inaccurate conclusions regarding the impact of FTA on outbound FDI. Our analysis finds that outbound FDI is either unrelated to participation in an FTA or is negatively affected.
doi_str_mv	10.1002/soej.12136
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subjects	C52 F13 Foreign direct investment Foreign investment Free trade Trade agreements Trade barriers
title	Free Trade Agreements and Foreign Direct Investment: The Role of Endogeneity and Dynamics
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