Deep Trade Agreement and Foreign Direct Investments
Preferential trade agreements are growing in number and deepening in content by incorporating disciplines that go beyond market access. They increasingly encompass non-trade-related disciplines as diverse as intellectual property rights, environmen...
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| Language: | English |
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World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/undefined/750331635791488049/Deep-Trade-Agreement-and-Foreign-Direct-Investments http://hdl.handle.net/10986/36480 |
| Summary: | Preferential trade agreements are
growing in number and deepening in content by incorporating
disciplines that go beyond market access. They increasingly
encompass non-trade-related disciplines as diverse as
intellectual property rights, environment laws, or labor
market regulations. Moreover, because investment is
complementary to trade, preferential trade agreements
provide relevant institutional frameworks to partner
countries that wish to regulate their foreign investments.
This paper studies the impact of deep trade agreements on
foreign direct investment and examines three sub-questions.
First, is the impact of trade agreements on foreign direct
investment heterogeneous across types of business activity
Second, is this impact heterogeneous across disciplines
covered in the agreements Third, does the level of
development of home and host countries matter for this
impact The analysis exploits the World Bank’s data set on
the content of preferential trade agreement and data on
announcements of bilateral greenfield investment at the
activity level. The findings show that deep trade agreements
matter for investment: every additional discipline in a
preferential trade agreement increases foreign direct
investment by 1.4 percent, on average. Deep agreements do
not impact foreign direct investment in natural resources
and extractive activities and have heterogeneous effects
across manufacturing- and services-related activities. The
results also reveal that disciplines that go beyond the
mandate the World Trade Organization matter more for foreign
direct investment. Disciplines related to investment
liberalization and protection, intellectual property rights,
or migration increase foreign direct investment, whereas
disciplines on labor market regulations reduce investment.
The results are mostly driven by investment between
developed and developing countries. |
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