Understanding the role of trade agreements in Indonesia's FDI

Narayan, Paresh Kumar and Rath, Badri Narayan and Syarifuddin, Ferry (2022) Understanding the role of trade agreements in Indonesia's FDI. Journal of Asian Economics, 82. pp. 1-13. ISSN 1049-0078

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Abstract

In this paper, we develop the hypothesis that trade agreements influence foreign direct investment (FDI). We extend the conventional model of FDI determinants to accommodate the role of trade agreements. Fitting Indonesian data to this model, we discover strong evidence that, while both bilateral and multilateral trade agreements positively influence Indonesia's FDI, multilateral agreements have a larger effect. We further distinguish FDI by sector and find sector-specific trade agreements play an active role: these agreements positively influence FDI in the primary and service sectors, but not in the manufacturing sector. We also find that trade agreements positively influence FDI through the export and total factor productivity channels, and less so through the economic growth channel.

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IITH Creators:
IITH CreatorsORCiD
Rath, Badri Narayanhttp://orcid.org/0000-0001-7211-0952
Item Type: Article
Uncontrolled Keywords: Bilateral trade agreements, exchange-rate volatility, fdi, firms, foreign direct-investment, impact, Multilateral trade agreements, outward, Sector
Subjects: Arts > Liberal arts
Divisions: Department of Liberal Arts
Depositing User: . LibTrainee 2021
Date Deposited: 09 Sep 2022 10:04
Last Modified: 09 Sep 2022 10:04
URI: http://raiithold.iith.ac.in/id/eprint/10511
Publisher URL: https://doi.org/10.1016/j.asieco.2022.101532
OA policy: https://v2.sherpa.ac.uk/id/publication/12472
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