The Impact of South-South Trade Agreements on FDI

25 Pages Posted: 8 Apr 2015

See all articles by Mondher Cherif

Mondher Cherif

University of Reims Champagne-Ardenne

Christian Dreger

European University Viadrina Frankfurt (Oder); IZA Institute of Labor Economics; Chinese Academy of Social Sciences (CASS)

Date Written: March 1, 2015

Abstract

The integration of emerging markets into the global economy is heavily promoted by foreign direct investment (FDI) inflows. Within the factors driving the location of FDI, regional trade agreements (RTAs) become increasingly relevant for emerging markets. We explore the impact of South-South trade agreements on FDI by dynamic panel models. The MENA countries are compared to the better performing regions in Latin America and Southeast Asia. Several striking results emerge from the analysis. First, agglomeration effects are weaker for the MENA region. Second, the impact of the RTA is important. However, RTAs do not generally rise the attractiveness of the region for foreign investors, as the effect interacts with business-friendly regulations. Third, financial deepening in the host country is a crucial factor, often again in combination with the institutional framework. Furthermore, institutional conditions may not be relevant per se, but only in terms of its interaction with the macroeconomic determinants.

Keywords: MENA Region, foreign investment, South-South trade agreements

JEL Classification: F15, F21, F63, E22

Suggested Citation

Cherif, Mondher and Dreger, Christian, The Impact of South-South Trade Agreements on FDI (March 1, 2015). DIW Berlin Discussion Paper No. 1461, Available at SSRN: https://ssrn.com/abstract=2591308 or http://dx.doi.org/10.2139/ssrn.2591308

Mondher Cherif

University of Reims Champagne-Ardenne ( email )

51096 Reims Cedex
France

Christian Dreger (Contact Author)

European University Viadrina Frankfurt (Oder) ( email )

Frankfurt (Oder)
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

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