Regional Integration: NAFTA and the Reconfiguration of North American Industry

Abstract

Abstract The impacts of regional integration on firm location strategies post‐1989 in North America are investigated using three different data sets. First, World Investment Report data (UNCTAD, 1998) show changes in the stock of North American inward and outward foreign direct investment (FDI) over the 1985–97 period. Second, two‐way FDI stock data from the OECD (1997) provide a snapshot of intraregional and extraregional North American integration in 1989 and 1994. Third, using US inward FDI data for the 1989–94 period, investment patterns are compared of insider firms (Canada and Mexico) with outsider firms (all others) along four dimensions: timing of FDI, mode of entry, state location, and industry choice. Since NAFTA (North American Free Trade Agreement) took effect on 1 January 1994, the data should be seen as more reflective of the Canada–US Free Trade Agreement, but some interesting patterns of responses to regional integration are found that suggest the regional integration process in North America is significantly affecting plant location decisions.