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Endogeneity and dynamics in the impact of free trade agreements on trade and foreign direct investment
| Content Provider | Semantic Scholar |
|---|---|
| Author | Lira, Cristina |
| Copyright Year | 2010 |
| Abstract | In recent years, international economists have devoted a great deal of attention to understanding the determinants of foreign direct investment (FDI) across countries. At the same time, many countries have entered into free trade agreements (FTA). Given their consequences for growth and welfare, it is important to determine how participation in an FTA affects the desire of firms to extend capital to foreign markets. There are theoretical arguments that support a positive (complementary) relationship between FTA and FDI between countries, as well as arguments supporting a negative (substitution) relationship. However, previous empirical studies often fail to control for endogeneity and the dynamic nature of the relationship. Using a panel of countries for the years 1990-2006, this paper effectively controls for participation in an FTA while analyzing the impact on FDI. The lengthy time series also allows us to effectively examine the dynamic nature of the relationship. Overall, we find that failing to address these econometric issues yields inaccurate conclusions regarding the impact of FTA on FDI. While simple OLS estimation generally finds that FTA promotes FDI, our analysis shows that FDI is either unrelated to participation in a FTA or is negatively affected. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://acumen.lib.ua.edu/content/u0015/0000001/0000462/u0015_0000001_0000462.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
