Skip to main content Accessibility help

We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.

Close cookie message
×
Hostname: page-component-745bb68f8f-mzp66 Total loading time: 0 Render date: 2025-01-10T06:45:05.920Z Has data issue: false hasContentIssue false

4 - The Effects of Non-Trade Provisions in Trade Agreements on Bilateral FDI

Published online by Cambridge University Press:  19 October 2023

By
Hugo Rojas-Romagosa
Edited by
Miriam Manchin ,
Laura Puccio  and
Aydin B. Yildirim
Miriam Manchin
Affiliation:
Politecnico di Milano
Laura Puccio
Affiliation:
Université Libre de Bruxelles
Aydin B. Yildirim
Affiliation:
Eidgenössische Technische Hochschule Zürich
Get access

Summary

Preferential trade agreements (PTAs) have been estimated to increase bilateral foreign direct investment (FDI) between the signing countries. There is, however, significant heterogeneity between PTAs, and, with increasing frequency, several non-trade issues (NTIs) are also incorporated into PTAs. These include provisions on political and civil rights, economic and social rights, and environmental protection measures. Given the overall intrinsic heterogeneity in PTAs, it is relevant to analyse which of their characteristics are driving the increase in bilateral FDI flows after signing a trade agreement. The chapter uses a structural gravity model of FDI to empirically test the specific relation between non-trade provisions contained in preferential trade agreements with bilateral FDI. It is found that NTI provisions have, if any, a positive relation with bilateral FDI. The civil and political rights (CPR) index has a positive, significant and robust relation with bilateral FDI. However, the other two indicators, economic and social rights (ESR) and environmental protection (EP), usually have positive coefficient signs, but they are not robust to different specifications. The policy implications of these results are that we do not find any negative relation between including more and/or stronger non-trade provision in trade agreements and FDI flows.

Keywords

foreign direct investmentnon-trade policy objectivepreferential trade agreementcivil and political rightsstructural gravity model
Type
Chapter
Information
Coherence of the European Union Trade Policy with Its Non-Trade Objectives
World Trade Forum
 , pp. 89 - 115
Publisher: Cambridge University Press
Print publication year: 2023

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

Agnosteva, D., Anderson, J. E., and Yotov, Y. V. (2014). “Intra-national trade costs: Measures and aggregation,” NBER Working Paper 19872, National Bureau of Economic Research.Google Scholar
Anderson, J. E., Larch, M., and Yotov, Y. V. (2019). “Trade and investment in the global economy: A multi-country dynamic analysis,” European Economic Review, 120: 103311.CrossRefGoogle Scholar
Anderson, J. E., Larch, M., and Yotov, Y. V. (2020). “Transitional growth and trade with frictions: A structural estimation framework,” The Economic Journal, 130: 1583–1607.Google Scholar
Anderson, J. E. and van Wincoop, E. (2003). “Gravity with gravitas: A solution to the border puzzle,” American Economic Review, 93(1): 170–192.Google Scholar
Bergstrand, J. H. and Egger, P. (2007). “A knowledge-and-physical-capital model of international trade flows, foreign direct investment, and multinational enterprises,” Journal of International Economics, 73(2): 278–308.Google Scholar
Bergstrand, J. H. and Egger, P. (2010). “A general equilibrium theory for estimating gravity equations of bilateral FDI, final goods trade, and intermediate trade flows,” in The Gravity Model in International Trade: Advances and Applications, ed. by Bergeijk, P. V. and Brakman, S., Cambridge: Cambridge University Press, 29–70.Google Scholar
Beverelli, C., Keck, A., Larch, M., and Yotov, Y. V. (2018). “Institutions, trade and development: A quantitative analysis,” CESifo Working Paper 6920, Center for Economic Studies and the Ifo Institute (CESifo).Google Scholar
Blonigen, B. (2005). “A review of the empirical literature on FDI determinants,” Atlantic Economic Journal, 33(4): 383–403.Google Scholar
Blonigen, B. A. and Piger, J. (2014). “Determinants of foreign direct investment,” Canadian Journal of Economics, 47(3): 775–812.Google Scholar
Dür, A., Baccini, L., and Elsig, M. (2014). “The design of international trade agreements: Introducing a new database,” Review of International Organizations, 9(3): 353–375.Google Scholar
Egger, P. and Nigai, S. (2015). “Structural gravity with dummies only: Constrained ANOVA-type estimation of gravity models,” Journal of International Economics, 97(1): 86–99.Google Scholar
Fally, T. (2015). “Structural gravity and fixed effects,” Journal of International Economics, 97(1): 76–85.Google Scholar
Gamso, J. and Grosse, R. (2021). “Trade agreement depth, foreign direct investment, and the moderating role of property rights,” Journal of International Business Policy, 4: 308–325.CrossRefGoogle Scholar
Heid, B., Larch, M., and Yotov, Y. V. (2015). “A simple method to estimate the effects of non-discriminatory trade policy within structural gravity models,” Mimeo, University of Bayreuth.Google Scholar
Hofmann, C., Osnago, A., and Ruta, M. (2017). “Horizontal depth: A new database on the content of preferential trade agreements,” Policy Research Working Paper 7981, World Bank, Trade and Competitiveness Global Practice Group.Google Scholar
Horn, H., Mavroidis, P. C., and Sapir, A. (2010). “Beyond the WTO? An anatomy of EU and US preferential trade agreements,” World Economy, 33(11): 1565–1588.Google Scholar
IMF (2003). “Foreign direct investment trends and statistics,” Working Paper, October, International Monetary Fund, Statistics Department.CrossRefGoogle Scholar
Kox, H. L. M. and Rojas-Romagosa, H. (2020). “How trade and investment agreements affect bilateral foreign direct investment: Results from a structural gravity model,” World Economy, 43(12): 3203–3242.Google Scholar
Larch, M., Wanner, J., Yotov, Y. V., and Zylkin, T. (2017). “The currency union effect: A PPML re-assessment with high-dimensional fixed effects,” Working Paper 2017-07, Drexel University School of Economics.Google Scholar
Lechner, L. (2016). “The domestic battle over non-trade issues in preferential trade agreements,” Review of International Political Economy, 23(5): 840–871.Google Scholar
Mattoo, A., Rocha, N., and Ruta, M. (2020). Handbook of Deep Trade Agreements, Washington, DC: World Bank.CrossRefGoogle Scholar
Miroudot, S. and Rigo, D. (2019). “Preferential trade agreements and multinational production,” RSCAS Working Papers 2019/14, European University Institute, Robert Schuman Centre for Advanced Studies, Global Governance Programme.CrossRefGoogle Scholar
Olivero, M. P. and Yotov, Y. V. (2012). “Dynamic gravity: Endogenous country size and asset accumulation,” Canadian Journal of Economics, 45(1): 64–92.Google Scholar
Ramondo, N. and Rodríguez-Clare, A. (2013). “Trade, multinational production, and the gains from openness,” Journal of Political Economy, 121(2): 273–322.Google Scholar
Santos Silva, J. and Tenreyro, S. (2006). “The log of gravity,” Review of Economics and Statistics, 88(4): 641–658.Google Scholar
UNCTAD (2014). “Bilateral FDI statistics 2014,” Database accessed in August 2018, United Nations Conference on Trade and Development, http://unctad.org/en/Pages/DIAE/FDI%20Statistics/FDI-Statistics-Bilateral.aspx.Google Scholar
UNCTAD (2019). “International investment agreements navigator,” Investment Policy Hub, database accessed in July 2019, United Nations Conference on Trade and Development, https://investmentpolicy.unctad.org.Google Scholar
Yotov, Y. V., Piermartini, R., Monteiro, J.-A., and Larch, M. (2016). An Advanced Guide to Trade Policy Analysis: The Structural Gravity Model, Geneva: World Trade Organization.Google Scholar

Save book to Kindle

To save this book to your Kindle, first ensure [email protected] is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×