Edited by Ulrich Volz
Chapter 8: Regional Integration and FDI in Emerging Markets
8. Regional integration and FDI in emerging markets Julia Kubny, Florian Mölders and Peter Nunnenkamp* 8.1 INTRODUCTION There is no shortage of studies on the determinants of foreign direct investment (FDI). Likewise, a huge body of literature exists on the economic effects of regional integration agreements (RIAs) on both member countries and non-members. Both issues are not only of academic interest, but figure high on the political agenda almost everywhere in the world. Policy-makers fiercely compete for FDI inflows, which are widely believed to promote economic growth in the host countries. RIAs have mushroomed, partly because multilateral integration has been stalled, for example, in the WTO context. As a matter of fact, RIAs are considered a means to improve member countries’ chances to attract FDI. RIAs affect several factors on the list of possible FDI determinants, including effective market size, economic growth and trade costs.1 According to Brenton et al. (1999, p. 95), “recent evidence suggests that regional economic integration provides an important stimulus not only to trade, but also to FDI”. But it also appears that high expectations have often not been met. UNCTAD (1998, p. 118) notes “the failure of numerous regional integration frameworks in the 1960s and 1970s to exert any discernable influence on transnational corporations”. Most probably, both FDI and RIAs are too diverse to allow for generalized verdicts regarding the effects of RIAs on FDI flows to member countries. FDI may respond differently depending on its source (within or outside the integration scheme) as...
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