Formation of Regional Trade Block on the Flow of Foreign Direct Investment; Empirical Study


Philip Agyei PEPRAH , Yao HONGXING , Geraude Fortune M. KOUNDE ,

Download Full PDF Pages: 27-35 | Views: 1407 | Downloads: 340 | DOI: 10.5281/zenodo.3491793

Volume 8 - April 2019 (04)


The aim of this study was to investigate the formation of regional trade blocs on the flow of foreign direct investment. There are many empirical types of research that have already investigated the Free Trade Area (FTA) and Preferential Trade Agreement (PTA). Few researchers have however investigated on the regional trade block formation between trade members and the flow of FDI. This study discussed the important regional trade blocs between ASEAN+3 and Europe Union and after that explored the impact of regional trade blocs on the flow of foreign direct investment in these blocs. The panel data method and FDI gravity model was used on the country members of ASEAN+3 and Europe from the 2005 to 2018. The output of the study revealed the formation of regional trade bloc has a positive and significant impact on the flows of foreign direct investment


Regional Trade Blocs, Foreign Direct Investment, Gravity Model


                         i.            Abala, Daniel O. (2014). Foreign direct investment and economic growth: An empirical analysis of Kenyan data. DBA Africa Management Review, 4(1), 62-83.

      ii.            Akyuz, Yilmaz. (2015). Foreign Direct Investment, Investment Agreements, and Economic Development: Myths and Realities. Research Paper, 63.

    iii.            Ali, Sharafat. (2014). Foreign capital flows and economic growth in Pakistan: An empirical analysis. Ali, Sharafat (2014). Foreign Capital Flows and Economic Growth in Pakistan: An Empirical Analysis. World Applied Sciences Journal, 29(2), 193-201.

     iv.            Anyanwu, John C. (2014). Does Intra‐African Trade Reduce Youth Unemployment in Africa? African Development Review, 26(2), 286-309.

       v.            Asamoah, Michael Effah, Adjasi, Charles KD, & Alhassan, Abdul Latif. (2016). Macroeconomic uncertainty, foreign direct investment and institutional quality: Evidence from Sub-Saharan Africa. Economic Systems, 40(4), 612-621.

     vi.            Baccini, Leonardo, Dür, Andreas, & Elsig, Manfred. (2015). The Politics of trade agreement design: revisiting the depth–flexibility Nexus. International Studies Quarterly, 59(4), 765-775.

   vii.            Baccini, Leonardo, Dür, Andreas, & Haftel, Yoram Z. (2015). Imitation and innovation in international governance: the diffusion of trade agreement design. Trade cooperation: the purpose, design and effects of preferential trade agreements, 167-194.

 viii.            Baltagi, Badi H, Egger, Peter H, & Pfaffermayr, Michael. (2014). Panel data gravity models of international trade.

     ix.            Bende-Nabende, Anthony. (2017). Globalisation, FDI, regional integration and sustainable development: theory, evidence and policy: Routledge.

       x.            Bhalla, Ajit S. (2016). Regional blocs: building blocks or stumbling blocks? : Springer.

     xi.            Blyde, Juan, Graziano, Alejandro, & Volpe Martincus, Christian. (2015). Economic integration agreements and production fragmentation: evidence on the extensive margin. Applied Economics Letters, 22(10), 835-842.

   xii.            Bokpin, Godfred Alufar, Mensah, Lord, & Asamoah, Michael E. (2015). Foreign direct investment and natural resources in Africa. Journal of Economic Studies, 42(4), 608-621.

 xiii.            Brafu-Insaidoo, William Gabriel, & Biekpe, Nicholas. (2014). Determinants of foreign capital flows: The experience of selected Sub-Saharan African countries. Journal of Applied Economics, 17(1), 63-88.

 xiv.            Büthe, Tim, & Milner, Helen V. (2014). Foreign direct investment and institutional diversity in trade agreements: Credibility, commitment, and economic flows in the developing world, 1971–2007. World Politics, 66(1), 88-122.

   xv.            Chen, Lurong, & De Lombaerde, Philippe. (2014). Testing the relationships between globalization, regionalization and the regional hubness of the BRICs. Journal of Policy Modeling, 36, S111-S131.

 xvi.            Chenaf-Nicet, Dalila, & Rougier, Eric. (2016). The effect of macroeconomic instability on FDI flows: A gravity estimation of the impact of regional integration in the case of Euro-Mediterranean agreements. International Economics, 145, 66-91.

xvii.            Clegg, Jeremy. (2016). Effects of Market Integration in Perspective. International Business and Europe in Transition, 189.

xviii.            Cuong, Hoang Chi, Trang, Tran Thi Nhu, & Nga, Dong Thi. (2015). Do Free Trade Agreements (FTAs) Really Increase Vietnam’s Foreign Trade and Inward Foreign Direct Investment (FDI)? British Journal of Economics, Management & Trade, 7(2), 110-127.

 xix.            Devadason, Evelyn S. (2014). The trans-pacific partnership (TPP): The Chinese perspective. Journal of Contemporary China, 23(87), 462-479.

   xx.            Dunning, John H. (2015). The eclectic paradigm of international production: a restatement and some possible extensions The Eclectic Paradigm (pp. 50-84): Springer.

 xxi.            Ebaidalla, Ebaidalla M, & Yahia, Abdelrahim M. (2014). Performance of Intra‐COMESA Trade Integration: A Comparative Study with ASEAN's Trade Integration. African Development Review, 26(S1), 77-95.

xxii.            Fan, Di, Cui, Lin, Li, Yi, & Zhu, Cherrie J. (2016). Localized learning by emerging multinational enterprises in developed host countries: A fuzzy-set analysis of Chinese foreign direct investment in Australia. International Business Review, 25(1), 187-203.

xxiii.            Gnangnon, Sèna Kimm. (2017). Multilateral trade liberalisation and foreign direct investment inflows. Economic Affairs, 37(1), 66-84.

xxiv.            Gurova, Irina. (2014). A Theoretical Model for Trade Integration in the CIS Region. Problems of Economic Transition, 57(5), 37-57.

xxv.            Haberly, Daniel, & Wójcik, Dariusz. (2015). Regional blocks and imperial legacies: Mapping the global offshore FDI network. Economic Geography, 91(3), 251-280.

xxvi.            Haim, Dotan A. (2016). Alliance networks and trade: The effect of indirect political alliances on bilateral trade flows. Journal of Peace Research, 53(3), 472-490.

xxvii.            Helpman, Elhanan. (2014). Foreign trade and investment: Firm‐level perspectives. Economica, 81(321), 1-14.

xxviii.            Hill, Stephen, & Munday, Max. (2016). The regional distribution of foreign manufacturing investment in the UK: Springer.

xxix.            Kabir, Mahfuz, Salim, Ruhul, & Al-Mawali, Nasser. (2017). The gravity model and trade flows: Recent developments in econometric modeling and empirical evidence. Economic analysis and policy, 56, 60-71.

xxx.            Kahouli, Bassem, & Maktouf, Samir. (2015a). The determinants of FDI and the impact of the economic crisis on the implementation of RTAs: A static and dynamic gravity model. International Business Review, 24(3), 518-529.

xxxi.            Kahouli, Bassem, & Maktouf, Samir. (2015b). Trade creation and diversion effects in the Mediterranean area: Econometric analysis by gravity model. The Journal of International Trade & Economic Development, 24(1), 76-104.

xxxii.            Kawai, Masahiro, & Naknoi, Kanda. (2015). ASEAN economic integration through trade and foreign direct investment: Long-term challenges.

xxxiii.            Kim, Soo Yeon, Mansfield, Edward D, & Milner, Helen V. (2016). Regional trade governance: Oxford University Press Oxford.

xxxiv.            Latif, Zahid, Latif, Shahid, Ximei, Liu, Pathan, Zulfiqar Hussain, Salam, Shafaq, & Jianqiu, Zeng. (2018). The dynamics of ICT, foreign direct investment, globalization and economic growth: Panel estimation robust to heterogeneity and cross-sectional dependence. Telematics and Informatics, 35(2), 318-328.

xxxv.            Lizieri, Colin, & Pain, Kathy. (2014). International office investment in global cities: the production of financial space and systemic risk. Regional Studies, 48(3), 439-455.

xxxvi.            Marszk, Adam. (2014). Economic integration and Foreign Direct Investment: Review of main theoretical concepts. Entrepreneurial Business and Economics Review, 2(3), 79-89.

xxxvii.            Neumayer, Eric. (2017). Greening trade and investment: environmental protection without protectionism: Routledge.

xxxviii.            Nguyen, Quyen TK. (2014). The Regional Strategies of B ritish Multinational Subsidiaries in S outh E ast A sia. British Journal of Management, 25, S60-S76.

xxxix.            Nwaogu, Uwaoma G, & Ryan, Michael J. (2015). FDI, foreign aid, remittance and economic growth in developing countries. Review of Development Economics, 19(1), 100-115.

     xl.            Okabe, Misa. (2015). Impact of free trade agreements on trade in East Asia. ERIA Discussion Paper Series, 1, 48.

   xli.            Orji, Anthony, Uche, Akachukwu Stanley, & Ilori, Elijah Ayobami. (2014). Foreign capital inflows and growth: An empirical analysis of WAMZ experience. International Journal of Economics and Financial Issues, 4(4), 971-983.

 xlii.            Pandya, Sonal S. (2016). Political economy of foreign direct investment: Globalized production in the twenty-first century. Annual Review of Political Science, 19, 455-475.

xliii.            Qian, Xingwang, & Sandoval-Hernandez, Jesus. (2016). Corruption distance and foreign direct investment. Emerging Markets Finance and Trade, 52(2), 400-419.

xliv.            Reyes, Javier, Wooster, Rossitza, & Shirrell, Stuart. (2014). Regional trade agreements and the pattern of trade: A networks approach. The World Economy, 37(8), 1128-1151.

 xlv.            Sánchez-Martín, Miguel Eduardo, De Arce, Rafael, & Escribano, Gonzalo. (2014). Do changes in the rules of the game affect FDI flows in Latin America? A look at the macroeconomic, institutional and regional integration determinants of FDI. European Journal of Political Economy, 34, 279-299.

xlvi.            Shah, Mumtaz Hussain, & Khan, Yahya. (2016). Trade liberalization and FDI inflows in emerging economies.

xlvii.            Siudek, Tomasz, & Zawojska, Aldona. (2014). Competitiveness in the economic concepts, theories and empirical research. Acta Scientiarum Polonorum. Oeconomia, 13(1).

xlviii.            Suder, Gabriele, Liesch, Peter W, Inomata, Satoshi, Mihailova, Irina, & Meng, Bo. (2015). The evolving geography of production hubs and regional value chains across East Asia: Trade in value-added. Journal of World Business, 50(3), 404-416.

xlix.            Suliman, Adil H, & Elian, Mohammad I. (2014). Foreign direct investment, financial development, and economic growth: a cointegration model. The Journal of developing areas, 219-243.

        l.            Thangavelu, Shandre M, & Narjoko, Dionisius. (2014). Human capital, FTAs and foreign direct investment flows into ASEAN. Journal of Asian Economics, 35, 65-76.

      li.            Thompson, Piers, & Zang, Wenyu. (2015). Foreign direct investment and the SME sector. International Journal of Entrepreneurial Behavior & Research, 21(1), 50-75.

    lii.            Verbeke, Alain, & Asmussen, Christian Geisler. (2016). Global, local, or regional? The locus of MNE strategies. Journal of Management Studies, 53(6), 1051-1075.

  liii.            Verbeke, Alain, Kano, Liena, & Yuan, Wenlong. (2016). Inside the regional multinationals: A new value chain perspective on subsidiary capabilities. International Business Review, 25(3), 785-793.

   liv.            Vinesh, Sannassee Raja, Boopendra, Seetanah, & Hemraze, Diksha. (2014). Determinants of foreign direct investment in SADC: an empirical analysis. The Business & Management Review, 4(4), 146.

Cite this Article: