New Horizons in International Business series
Edited by Lorraine Eden and Wendy Dobson
Chapter 8: FDI in an FTA with Uncertain Market Access
* Richard Harris INTRODUCTION Ed Safarian was a proliﬁc contributor to the international and Canadian literature on direct investment and its relationship to policy, growth and trade. I personally encountered his work as an undergraduate at Queen’s University in the 1960s and over the years came to appreciate his keen sense of getting to the facts. I also remember Ed as one who emphasized the importance of the investment provisions of the Canada–US FTA. In this paper I want to draw out some of the relationships between trade and FDI within a free trade area, but in the case in which market access is less than perfectly secure. This is a paper which follows a long tradition of work by Ed (see Safarian, 1969, 1993, for example), Gestrin and Rugman (1994), and others on the relationship between FTAs and FDI. The Canadian experience post 1988 has suggested that perfectly secure access to the US market was not achieved. This appears also to be the case in a number of the FTAs which have emerged over the last several years. The origins of the Canada–US FTA led to substantial empirical and theoretical speculation as to the impact of less than completely secure access on the part of Canadian located producers to the US market. This paper explores the implications of incomplete or non-secure access on the pattern of inward FDI to a regional FTA in the presence of country size asymmetries.1 One of the principal policy worries in Canada...
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