Regional Trade Integration and Multinational Firm Strategies

37 Pages Posted: 9 Apr 2009

See all articles by Pol Antras

Pol Antras

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

C. Fritz Foley

Harvard Business School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 9, 2009

Abstract

This paper analyzes the effects of the formation of a regional trade agreement on the level and nature of multinational firm activity. We examine aggregate data that captures the response of U.S. multinational firms to the formation of the ASEAN free trade agreement. Observed patterns guide the development of a model in which heterogeneous firms from a source country decide how to serve two foreign markets. Following a reduction in tariffs on trade between the two foreign countries, the model predicts growth in the number of source-country firms engaging in foreign direct investment, growth in the size of affiliates that are active in reforming countries both before and after the tariff reduction, and an increase in the extent to which the sales of affiliates in reforming countries are directed towards other reforming countries. Analysis of firm-level responses to the creation of the ASEAN free trade agreement yields results that are consistent with these predictions.

Keywords: multinational firms, foreign direct investment, free trade agreements

JEL Classification: F15, F21, F23

Suggested Citation

Antras, Pol and Foley, C. Fritz, Regional Trade Integration and Multinational Firm Strategies (April 9, 2009). Available at SSRN: https://ssrn.com/abstract=1375488 or http://dx.doi.org/10.2139/ssrn.1375488

Pol Antras

Harvard University - Department of Economics ( email )

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C. Fritz Foley (Contact Author)

Harvard Business School ( email )

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