Regional Economic Integration and the Location of Multinational Firms |
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Authors: | Carlo Altomonte |
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Institution: | (1) IEP, Università Bocconi, Via Gobbi 5, 20136 Milan, Italy |
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Abstract: | A theoretical model of international location is applied to a process of regional economic integration in which a set of countries
mutually removes barriers to trade and investment, thus overcoming the traditional ‘hub and spoke’ setup of regional agreements.
The theoretical results are matched with actual trade and foreign investment data from a sample of some 4,200 multinational
firms who have invested in Central and Eastern Europe over the 1990–1999 period. Controlling for the effects of the reduction
in trade barriers through a proper specification of a gravity model, it is found that the conventional outcome of an agglomeration
of economic activities in the centre of the integrating area does not necessarily hold. Multilateral regional integration
agreements can act as an important dispersion force significantly driving the location of multinational firms. A panel probit
econometric exercise confirms the findings.
JEL no. F12, F15, F21 |
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Keywords: | Economic integration FDI |
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