The effect of preferential trading arrangements on foreign direct investment activity: Empirical evidence from the African, Caribbean and Pacific group

Aruna Gounder, Rodney Falvey, Gulasekaran Rajaguru

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Abstract

In this paper we add to a relatively small literature on FDI in the ACP group by focusing on the role of PTAs in attracting FDI. Our empirical analysis utilises panel data on bilateral FDI stocks from 34 OECD countries into 45 ACP countries over the period 2000-2012. This bilateral specification allows us to control for country pair policy variables such as the presence of a PTA, a double tax treaty or a bilateral investment treaty between the OECD source and ACP host country, along with other important explanatory variables identified in the literature. We conclude the prevalence of market seeking FDI in the ACP group, with an important role for regional integration in providing access to surrounding market potential. We find that in the Caribbean a PTA, with or without investment provisions, has no significant effect on FDI, regardless of whether a BIT is in place. In Africa, however, we find that a bilateral PTA with investment provisions, with or without a BIT, reduces FDI; and a bilateral PTA without investment provisions does the same, unless a bilateral BIT is in place, in which case FDI increases.
Original languageEnglish
Publication statusPublished - 2017
EventAustralian Conference of Economists: Economics for Better Lives - Sydney, Sydney, Australia
Duration: 19 Jul 201721 Jul 2017
Conference number: 46th
http://ace2017.org.au/ (ACE 2017 Home Page)
https://vimeo.com/250391912 (ACE Conference 2017 [Promotional Video])

Conference

ConferenceAustralian Conference of Economists: Economics for Better Lives
Abbreviated titleACE 2017
CountryAustralia
CitySydney
Period19/07/1721/07/17
OtherThe theme this year is “Economics for Better Lives” and sessions will consider issues such as inequality and poverty, financial regulation, taxation reform, education reform, the economics of mental health, utility regulation, transport economics, infrastructure, regional trade agreements, international migration flows, international aid and development, the role of behavioral economics the economics of populism, and macroeconomics in a low interest rate world. We are planning a special session on professional ethics for economists, and the future of the profession.

This is the premier Australian conference for economists in universities, public policy, business and finance. Each year we welcome many overseas economists including this year’s keynote speakers Carol Graham and Kip Viscusi. Generations of young economists and students have presented papers and connected with others at the conference, launching their careers. Our policy panels with distinguished academic and government economists have introduced new ideas and shaped public policy.
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  • Related Research Outputs

    The Effects of Preferential Trade Agreements on Foreign Direct Investment: Evidence from the African Caribbean Pacific Region

    Gounder, A., Falvey, R. & Rajaguru, G., Sep 2019, In : Open Economies Review. 30, 4, 23 p.

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    Cite this

    Gounder, A., Falvey, R., & Rajaguru, G. (2017). The effect of preferential trading arrangements on foreign direct investment activity: Empirical evidence from the African, Caribbean and Pacific group. Paper presented at Australian Conference of Economists: Economics for Better Lives, Sydney, Australia.