Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 172: Regional Integration and Foreign Direct Investment

Magnus Blomström () and Ari Kokko ()
Additional contact information
Magnus Blomström: European Institute of Japanese Studies, Postal: Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Ari Kokko: Department of Economics, Postal: Stockholm School of Economics, Box 6501, 113 83 Stockholm, Sweden

Abstract: This paper deals with the investment effects of regional integration agreements and discusses how such arrangements may affect inward and outward foreign direct investment flows in the integrating region. After setting up a conceptual framework for the analysis, we provide three studies focusing on different kinds of regional integration: North-North integration (Canada joining CUSFTA), North-South integration (Mexico’s accession to NAFTA), and South-South integration (MERCOSUR). The main conclusion of the study is that the responses to an integration agreement largely depend on the environmental change brought about by the agreement and the locational advantages of the participating countries and industries. Moreover, the findings suggest that the most positive impact on FDI has occurred when regional integration agreements have coincided with domestic liberalization and macroeconomic stabilization in the member countries.

Keywords: Regional integration; FDI; MNCs

JEL-codes: F15; F23

30 pages, May 1997

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