Edited by Masaaki Kotabe and Preet S. Aulakh
Chapter 2: Regional Integration and Foreign Direct Investment: Theory and Lessons from NAFTA
2. Regional integration and foreign direct investment: theory and lessons from NAFTA Lorraine Eden INTRODUCTION One of the strongest worldwide trends in trade policy in the past 20 years has been the rebirth of regional integration schemes, or preferential trading agreements (PTAs). These agreements ﬁrst became fashionable in the 1960s, after the 1957 Treaty of Rome created the European Economic Community (EEC). Many of the ‘ﬁrst wave’ of regional integration schemes were started in Latin and South America, but languished in the 1970s. In the mid-1980s, the desire to deepen European integration with the EC1992 project regenerated interest in a ‘second wave’ of regional integration schemes (Dunning 1997b; Serra and Kallab 1997). By 1996, there were in excess of 100 PTAs around the world, more than double the number in 1985 (Bhagwati and Panagariya 1996). The ‘ﬁrst wave’ PTAs (for example, CARICOM) were revitalized; others (for example, MERCOSUR) were newly created. Regional integration is a topic that has attracted interest from many disciplines: international economics, international politics, international trade law, and more recently, international business. There is a large and rich literature on the economics of regional integration that stretches back to the early 1950s and the work of international trade economists such as Jacob Viner (1950), Richard Lipsey (1960) and Bela Balassa (1961). Much of the early international trade literature focused on types of preferential trading arrangements and their static and dynamic effects on international trade and national welfare.1 International business (IB) scholars ﬁrst became interested in regional integration...
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