Multinational Firms’ Location and the New Economic Geography
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Multinational Firms’ Location and the New Economic Geography

Edited by Jean-Louis Mucchielli and Thierry Mayer

This book analyses how foreign direct investors choose their locations, whilst exploring the forces which shape international economic geography. Although these two issues are, to some extent, inter-related, researchers have only recently acknowledged the similarity of economic geography and international business approaches to the empirical assessment of likely causes of the degree of spatial concentration observed in many modern industries.
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Chapter 4: North-South integration and multinationals: the case of the automobile industry in Mexico

Sylvie Montout and Habib Zitouna


4. North–south integration and multinationals: the case of the automobile industry in Mexico Sylvie Montout and Habib Zitouna INTRODUCTION 4.1 In December 1992, Canada, Mexico and the USA signed the North American Free Trade Agreement (NAFTA), which came into effect on 1 January 1994. It is the first formal regional integration agreement involving both developed and developing countries. This regional integration implies the reduction and the elimination of tariff and non-tariff barriers, as well as a general deregulation and strengthening of competition. Restrictions on foreign direct investment (FDI) were eased and the financial sector reformed. This new environment and, in particular, the increased exposure to foreign competition on the home market and abroad provided an important stimulus for foreign direct investment. Indeed, the bringing into force of NAFTA seems to have a positive incidence on the American investment flows inwards in Mexico (Stevens, 1998). The existing theoretical literature on economic integration and FDI deals with the question of whether regional integration agreements (RIAs), by eliminating trade barriers, promote FDI flows. Regional integration creates a larger market which allows some firms to grow larger and stronger than would have been possible in individual national markets. The main benefits of integration is to make the region more attractive towards location, which should stimulate intra-regional FDI as well as inflows from the rest of the world. Norman and Motta (1996) found that increased market accessability prompts outside firms to invest in the regional block, reducing product prices, profits...

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