Regional Trade Agreements and Foreign Direct Investment

Regional trade institutions increase the local market size and attract higher foreign direct investment (FDI) inflows. The new economic geography provides the theoretical model for evaluating the spatial distribution of foreign capital within a multistate market. In this article, a fixed-effects cross-sectional time series regression examines 109 states from 1980-2005. The study's findings are that multilateral regional trade institutions are more likely to attract FDI inflows, and the gains in FDI inflows are highest in states with the strongest regional economy.