Hostname: page-component-848d4c4894-tn8tq Total loading time: 0 Render date: 2024-06-15T15:16:40.561Z Has data issue: false hasContentIssue false
  • English
  • Français

Regional Integration and Third-Country Inward Investment

Published online by Cambridge University Press:  20 January 2017

Jim Markusen
Jim Markusen*
Affiliation:
University of Colorado at Boulder
Get access Rights & Permissions [Opens in a new window]

Abstract

The paper focuses on how the Free Trade Area of the Americas (FTAA), which will include both high-income developed and developing countries, will affect the options and investment strategies of multinational firms outside the region. Preliminary sections discuss the strategies open to both insider firms (headquartered with the Americas) and outsider firms, and the characteristics of technologies and countries that determine equilibrium location choices. Then I turn more explicitly to the question at hand, and suggest that a free-trade area of the Americas can be conceptually decomposed into (a) integration among the southern developing countries and (b) integration between the south and NAFTA. The first will give third-country multinationals horizontal investment opportunities to serve the effectively larger southern market with local production to serve the local southern market. The second gives third-country multinationals the opportunity to exploit low labor costs in the south to produce for export to North America (export-platform FDI). While this all sounds attractive for third-country firms, the theory emphasizes that the same advantages of integration are conferred upon U.S. and Canadian firms who have the additional advantage of supplying services and intermediate goods to southern affiliates at lower cost than the third country firms. This competitive effect from insider firms leads the theory to suggest weaker benefits to third-country firms than a simpler approach might predict.

Type
Research Article
Information
Business and Politics , Volume 6 , Issue 1 , April 2004 , pp. 1 - 24
Copyright
Copyright © V.K. Aggarwal 2004 and published under exclusive license to Cambridge University Press 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Included are some references not explicitly cited in the text, but which might be useful to the reader.Google Scholar
Braconier, Henrik and Ekholm, Karolina. 2001. “Foreign Direct Investment in Central and Eastern Europe: Employment Effects in the EU.” Working Paper 3052. London: Centre for Economic Policy Research.Google Scholar
Braconier, Henrik and Ekholm, Karolina. 2000. “Swedish Multinationals and Competition from High and Low-Wage Countries.” Review of International Economics 8: 448–461.Google Scholar
Braconier, Henrik, Norbäck, Pehr-Johan and Urban, Dieter. 2002a., “Vertical FDI Revisited.” Working Paper. Stockholm: Research Institute of Industrial Economics.Google Scholar
Braconier, Henrik, Norbäck, Pehr-Johan and Urban, Dieter. 2002b. “Reconciling the Evidence on the Knowledge-Capital Model.” Stockholm: Research Institute of Industrial Economics.Google Scholar
Brainard, S. Lael. 1997. “An Empirical Assessment of the Proximity-Concentration Tradeoff between Multinational Sales and Trade.” American Economic Review 87: 520–544.Google Scholar
Carr, David, Markusen, James R. and Maskus, Keith E. 2001. “Estimating the Knowledge-Capital Model of the Multinational Enterprise.” American Economic Review 91: 693–708.Google Scholar
Ekholm, Karolina, Forlsid, Rikard and Markusen, James R. 2003. “Export Platform Foreign Direct Investment.” Working Paper 9517. Cambridge, Mass.: National Bureau of Economic Research.Google Scholar
Hanson, Gordon H., Mataloni, Ray J. and Slaughter, Matthew J. 2001. “Expansion Strategies of U.S. Multinational Firms.” Brookings Trade Forum 2001.Google Scholar
Hanson, Gordon H., Mataloni, Ray J. and Slaughter, Matthew J. 2003. “Vertical Specialization in Multinational Firms.” Working Paper 9723. Cambridge, Mass.: National Bureau of Economic Research.Google Scholar
Kellenberg, Derek. 2002. “The Provision of Public Inputs and Foreign Direct Investment.” Working Paper. Boulder: University of Colorado.Google Scholar
Lopez-de-Silanes, Florencio, Markusen, James R. and Rutherford, Thomas F. 1996. “Trade Policy Subtleties with Multinational Firms.” European Economic Review 40: 1605–1627.CrossRefGoogle Scholar
Markusen, James R. 2002. Multinational Firms and the Theory of International Trade. Cambridge, Mass.: MIT Press.CrossRefGoogle Scholar
Markusen, James R. and Maskus, Keith E. 2001. “Multinational Firms: Reconciling Theory and Evidence.” in Topics in Empirical International Economics: A Festschrift, In Honor of Robert E. Lipsey, edited by Blomström, Magnus and Goldberg, Linda. Chicago: University of Chicago Press.Google Scholar
Markusen, James R. and Maskus, Keith E. 2002. “Discriminating among Alternative Theories of the Multinational Enterprise.” Review of International Economics 10: 694–707.Google Scholar
Motta, Massimo and Norman, George. 1996. “Does Economic Integration Cause Foreign Direct Investment.” International Economic Review 37: 757–783.Google Scholar
Taylor, Alan M. 2003. “Foreign Capital in Latin America in the Nineteenth and Twentieth Centuries.” Working Paper 9580. Cambridge, Mass. National Bureau of Economic Research.Google Scholar
Zhang, Kevin Honglin and Markusen, James R. 1999. “Vertical Multinationals and Host-Country Characteristics.” Journal of Development Economics 59: 233–252.CrossRefGoogle Scholar
Yeaple, Stephen Ross. 2003. “The Complex Integration Strategies of Multinationals and Cross-Country Dependencies in the Structure of Foreign Direct Investment.” Journal of International Economics 60: 293–314.Google Scholar