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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Main Authors: Laget, Edith, Roch, Nadia, Varela, Gonzalo
Format: Working Paper
Language:English
Published: World Bank, Washington, DC 2021
Subjects:
Online Access:http://documents.worldbank.org/curated/undefined/750331635791488049/Deep-Trade-Agreement-and-Foreign-Direct-Investments
http://hdl.handle.net/10986/36480
id okr-10986-36480
recordtype oai_dc
spelling okr-10986-364802021-11-05T05:10:43Z Deep Trade Agreement and Foreign Direct Investments Laget, Edith Roch, Nadia Varela, Gonzalo TRADE AGREEMENTS FOREIGN DIRECT INVESTMENT DEEP INTEGRATION REGIONALISM PREFERENTIAL TRADE AGREEMENTS REGIONAL TRADE INTEGRATION REGIONAL TRADE AGREEMENT 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. 2021-11-04T16:32:52Z 2021-11-04T16:32:52Z 2021-11 Working Paper http://documents.worldbank.org/curated/undefined/750331635791488049/Deep-Trade-Agreement-and-Foreign-Direct-Investments http://hdl.handle.net/10986/36480 English Policy Research Working Paper;No. 9829 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
topic TRADE AGREEMENTS
FOREIGN DIRECT INVESTMENT
DEEP INTEGRATION
REGIONALISM
PREFERENTIAL TRADE AGREEMENTS
REGIONAL TRADE INTEGRATION
REGIONAL TRADE AGREEMENT
spellingShingle TRADE AGREEMENTS
FOREIGN DIRECT INVESTMENT
DEEP INTEGRATION
REGIONALISM
PREFERENTIAL TRADE AGREEMENTS
REGIONAL TRADE INTEGRATION
REGIONAL TRADE AGREEMENT
Laget, Edith
Roch, Nadia
Varela, Gonzalo
Deep Trade Agreement and Foreign Direct Investments
relation Policy Research Working Paper;No. 9829
description 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.
format Working Paper
author Laget, Edith
Roch, Nadia
Varela, Gonzalo
author_facet Laget, Edith
Roch, Nadia
Varela, Gonzalo
author_sort Laget, Edith
title Deep Trade Agreement and Foreign Direct Investments
title_short Deep Trade Agreement and Foreign Direct Investments
title_full Deep Trade Agreement and Foreign Direct Investments
title_fullStr Deep Trade Agreement and Foreign Direct Investments
title_full_unstemmed Deep Trade Agreement and Foreign Direct Investments
title_sort deep trade agreement and foreign direct investments
publisher World Bank, Washington, DC
publishDate 2021
url http://documents.worldbank.org/curated/undefined/750331635791488049/Deep-Trade-Agreement-and-Foreign-Direct-Investments
http://hdl.handle.net/10986/36480
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