The Relationship Between Trade Agreements and FDI in Developing Countries

Fiorini Federica

Student thesis: Master thesis


This master thesis investigates the relationship between free trade agreements (FTAs) and foreign direct investment (FDI) in developing countries. In particular, it focuses on the ASEAN (Association of Southeast Asian nations) and MERCOSUR (Mercado Comun del Sur) agreements. The standard approach towards this area is an investigation of how trade agreement might create or divert FDI inflows into a specific country or groups of country. This thesis investigates whether entering into ASEAN or MERCOSUR agreements have a positive impact on FDI. The relevant theoretical perspectives are presented and different theories on the relationship between MNEs, local institutions, and their co-evolution are employed. A meta-analysis of corresponding empirical evidence is provided, in which selected studies are classified and analyzed in order to check which theoretical arguments are supported. Results of the meta analysis indicate that entering into ASEAN and MERCOSUR agreements do not have an impact on FDI in these regions. The results have important policy implications because developing countries are entering into bilateral and multilateral agreement in order to attract FDI. They not only lower or eliminate trade barriers but they also adopt measures to make their business environment more attractive. However, the results should be evaluated taking into account the main limitations of the thesis, that are both related to the type of methodology used, the meta-analysis (which is often criticized by researchersfor having several flaws) and to the fact that only two treaties are evaluated in the analysis. Keywords: BITs, FDI, FTAs, MNEs, institutional quality, meta-analysis, bilateral and multilateral trade

EducationsMSc in International Business, (Graduate Programme) Final Thesis
Publication date2016
Number of pages87
SupervisorsBjörn Jindra