Beyond Trade: The Impact of Preferential Trade Agreements on FDI Inflows

Abstract

This paper investigates the effects of preferential trade agreements (PTAs) on net FDI inflows of member countries using a comprehensive database of PTAs in a panel setting. PTA membership is associated with a positive change in net FDI inflows and FDI gains increase with the market size of PTA partners and their proximity to the host country. The estimated relationship is driven by the developing countries in the sample and agreements signed in the late 1990s–early 2000s, a period when the majority of “deep integration” PTAs have been advanced.