The FTAA and the Location of FDI

Abstract

The role of regional integration agreements (RIAs) as a determinant of the location of Foreign Direct Investment (FDI) has become an increasingly relevant issue for emerging economies. While the concerns regarding the impact of RIAs on FDI for countries in Latin America may be related to a number of RIA initiatives of different types (sub regional South-South agreements, agreements with the EU, etc.), the largest effects are likely to be associated with the ( Free Trade Area of the Americas ) FTAA. In this regard, there are a number of highly relevant questions: For instance, what effect will the FTAA have on FDI from the US and Canada to Latin American countries? How will it affect FDI from the rest of the world? What are the implications for a country such as Mexico, whose preferential access to the US may be diluted? Should we expect to see winners and losers? What determines whether a particular country wins or loses? This paper looks at the impact of regional integration on FDI, and attempts to derive conclusions regarding the likely impact of the FTAA on countries in Latin America. This paper was prepared for the IDB-Harvard Conference on the FTAA in Punta del Este, Uruguay.