Deep Trade Agreement and Foreign Direct Investments

Deep Trade Agreements and FDI in Partial and General Equilibrium: A Structural Estimation Framework

“…We also obtain positive estimates of the eects on FDI of several other DTA provisions including `labor market regulations', `export taxes', `public procurement' and `state owned enterprises'. This analysis reinforces and complements the ndings of Laget et al (2021) who study the impact of dierent DTA provisions with rm-level data for the period 2003-2015. Finally, our estimates do not reveal a signicant impact of the increase in the depth (number of provisions) on FDI.…”

“…Our nding on the insignicant impact of BITs may seem particularly strange, however, this result is common in the related literature, cf. Lesher and Miroudot (2006) and Laget et al (2021).…”

“…For example, the authoritative surveys of Eicher et al (2012) and Blonigen and Piger (2014) 1 on the determinants of FDI do not account for such provisions. Only very recently, some papers (e.g., Kox and Rojas-Romagosa, 2020;Laget et al, 2021) have studied the impact of Deep Trade Agreements (DTAs) and various PTA provisions (disciplines) on FDI, oering mixed evidence on the impact of in-…”

“…Guided by the theoretical model of Anderson et al (2019), 3 we specify two estimating gravity equationsone for trade and one for FDI, which are (i) consistent with and representative of a large number studies that quantify the impact of various determinants on FDI (e.g., Eicher et al, 2012;Blonigen and Piger, 2014;Kox and Rojas-Romagosa, 2020;Laget et al, 2021), and (ii) capitalize on the latest developments in the trade gravity literature (e.g., Head and Mayer, 2014;Yotov et al, 2016). Specically, we rely on the Poisson Pseudo-Maximum-Likelihood estimator to account for potential heteroskedasticity in the bilateral trade and FDI data and to take advantage of the information in the zero trade and FDI ows (cf.…”

“…Santos Silva andTenreyro, 2006, 2011). In addition, we employ a very rich set of xed eects (including origin-time, destination-time, and directional country-pair xed eects), which control for and absorb all possible country-specic and time-invariant bilateral deter-2 For example, Lesher and Miroudot (2006) obtain positive eects of investment provisions on FDI, while, more recently, Kox and Rojas-Romagosa (2020) and Laget et al (2021) do not nd that investment provisions have signicant additional impact on FDI. Moreover, we are not aware of existing work that quanties the full/general equilibrium impact of DTAs and their investment provisions on FDI.…”