The Asymmetric Effects of Multilateral, Regional, and Bilateral Economic Agreements on Cross-Border Trade and Investment

Abstract

International economic agreements mitigate institutional barriers and reduce uncertainties for firms engaging in cross-border business activities. To ease the barriers for international business, countries have issued multilateral, regional, and bilateral economic agreements that stimulate trade and foreign direct investment (FDI) by providing relevant safeguards. Building on new institutional economics (NIE) and the regionalization literature, this paper brings the regional dimension into the institutional analysis. Specifically, I theorize that regional economic agreements involve a stronger robust impact on trade and FDI as compared to multilateral economic agreements and bilateral economic agreements. The empirical analysis employs panel data techniques on the trade and FDI relationships between 14 economies in Asia from 2000 to 2016, and the results empirically corroborate the hypotheses.