| This paper analyzes the relationship between preferential trade agreements (PTAs) signed between countries and the foreign direct investment (FDI) inflows to the member countries of the agreements. Using the most comprehensive database of PTAs available, it extends earlier research by considering the relationship between FDI flows and different types of bilateral and multilateral trade agreements, by controlling more carefully for political institutions, and by analyzing FDI flows between pairs of countries rather than FDI receipts. FDI has grown in importance to economies across the globe and establishing a link between PTAs and FDI would provide policymakers with another avenue to promote FDI inflows to their countries. This study demonstrates that institutional variables play a role in the relationship between trade agreements and FDI, and that relationship also differs depending on the type of trade agreement---for example, entering a customs union with an OECD country has a very different relationship with FDI than joining the WTO. |
