The Impact of Regional Trade Agreements on the Global Orientation of Emerging Market Multinationals

Abstract

We analyze how an aspect of institutional change — regional integration in the form of regional trade agreements (RTAs) — affects the degree of global orientation (DGO) of emerging market (EM) multinational enterprises (MNEs).

We decompose regional integration into three key dimensions reflecting variations among RTA member countries — RTA Diversity, RTA Potential Market Size, and RTA Experience. We conceptualize and test how these three RTA characteristics determine firms’ DGO on a sample of 421 MNEs from 27 EMs worldwide during 2000-2006.

We find that greater RTA Diversity and RTA Experience increase EM MNEs’ global orientation, while greater RTA Potential Market Size influences the EM MNEs to be more regionally oriented. Conversely, our post-hoc analyses revealed that the results do not hold for MNEs based in the three most developed nations in the European Union- Germany, France, and the UK — emphasizing important differences of the effects of RTA characteristics on EM vs. Triad MNEs’ DGO.

Keywords: Regional Integration, Institutional Theory, General Emerging Markets Theory, EM MNEs, Global Strategy

JEL Classification: F15, F23