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REFORM CREATING REGIONAL TRADE AGREEMENTS AND FOREIGN DIRECT INVESTMENT: APPLICATIONS FOR EAST ASIA
Author(s) -
Park Innwon,
Park Soonchan
Publication year - 2008
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/j.1468-0106.2008.00418.x
Subject(s) - east asia , foreign direct investment , regional trade , international economics , gravity equation , economics , investment (military) , trade creation , gravity model of trade , international trade , bilateral trade , trade diversion , china , trade barrier , free trade , geography , international free trade agreement , macroeconomics , political science , politics , archaeology , law
. We estimate the investment creation and diversion effects of RTAs by using an extended gravity equation focusing on domestic reform as a commitment device for RTA membership. As a case study, we estimate the impact of proposed East Asian RTAs on inward FDI. We find that: (i) reform creating RTA membership, larger market size, better skilled labour and lower trade costs all contribute positively and significantly to inward FDI; and (ii) most of the proposed East Asian RTAs promote intra‐bloc FDI. In particular, both South–North and North–North RTAs prove to be more preferable membership combinations to South–South RTAs in East Asia.