The North American Free Trade Area Of ​​the Investment Creation And Investment Diversion Effect

The effects of investment creation and diversion are accelerated during theprocess of international regional economic integration. NAFTA has set an excellentexample. The three members have affected by the establishment of NAFTA in everyaspect, especially in investment. Focusing on the effects of investment creation anddiversion of members in NAFTA, this paper firstly introduces the origin and conceptsof the two investment effects theoretically, and then analyzes the investment situation.It is suggested that investment creation has been obvious in Mexico, Canada and USA,and investment diversion happened in some years when the macro economicenvironment was in bad status. At the same time, it provides an econometric analysis(regression model) of what or which factors would affect the effects of investmentcreation and diversion in the developing economy (Mexico). The results suggests thatthe two effects have close correlation with some macro economic indicators, such asGDP, import and export trade, exchange rate, etc. As a developing economy, Chinacould get some useful experience and lessons from Mexico.