Reform Creating Regional Trade Agreements and Foreign Direct Investment: Applications for East Asia

17 Pages Posted: 17 Jan 2009

See all articles by Innwon Park

Innwon Park

Korea University

Soonchan Park

Kongju National University

Abstract

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 SouthNorth and NorthNorth RTAs prove to be more preferable membership combinations to SouthSouth RTAs in East Asia.

Suggested Citation

Park, Innwon and Park, Soonchan, Reform Creating Regional Trade Agreements and Foreign Direct Investment: Applications for East Asia. Pacific Economic Review, Vol. 13, Issue 5, pp. 550-566, December 2008. Available at SSRN: https://ssrn.com/abstract=1327448 or http://dx.doi.org/10.1111/j.1468-0106.2008.00418.x

Innwon Park (Contact Author)

Korea University ( email )

Soonchan Park

Kongju National University ( email )

527 Yesan
340-800 Choongnam
Korea

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