Economic Integration and Foreign Direct Investment: Review of Main Theoretical Concepts

Abstract

The objective of the article is to present key theoretical relationships between economic integration and FDI flows. Research Design & Methods: The research method used is a comprehensive literature review. Most influential publications, including books, articles, working papers, etc. contributing to the subject were identified. The review consists of two essential parts: theory of FDI, and theoretical relationships between economic integration and FDI flows. Finally, the outlined publications were discussed and critiqued, including the empirical context, i.e. empirical verification of the presented links. Findings: In some areas the theoretical impact of integration on FDI is unclear, thus being an obstacle to making informed policy decisions. According to various theoretical concepts, economic integration should influence FDI flows mostly positively, due to e.g. reduced trade barriers and extended market sizes. Implications & Recommendations: A number of theoretical concepts support the positive impact of economic integration on FDI flows. Possible directions of future research include comparisons of blocs with members at different development level, and further development of FDI theories in order to account for integration effects. Contribution & Value Added: For the time being, this paper seems to be the most comprehensive and up-to-date survey of this topic. Article type: literature review

Regional financial integration and its impact on banking development: Evidence from Southern African Development Community countries

“…This study attempts to explore the link between the two. It has been proposed that regional financial integration enhances the attractiveness of the integrated region through removal of barriers and increase in market size (Marszk, ). This enhanced attractiveness is expected to result in increased foreign direct investment (FDI) flows from countries within and outside the integrated region.…”

How Does Economic Integration Affect Progress along the Investment Development Path? A Case Study of EU Member vs. Non-Member Countries from Eastern Europe

“…While interactions between economic integration and trade have received much attention in the theoretical and empirical literature (see e.g. Mays, 1978;Balassa, 2011;Kohl et al, 2016;Soete and Van Hove, 2017), interdependencies between economic integration and FDI flows still remain a relatively neglected research area (Medvedev, 2012;Marszk, 2014;Canh, Schinckus and Dinh Thanh, 2021). And yet, related research dates back to the sixties, when the pioneering study of Kindleberger (1966) appeared, introducing the concepts of investment creation and investment diversion in response to economic integration.…”

Integración regional por inversión extranjera directa del MERCOSUR y del TLCAN y el papel de sus socios menores, 1990-2016

“…Respecto a los flujos intrarregionales, puede existir un incremento de los mismos cuando la reducción de las barreras comerciales intrarregionales fomenta la IED vertical entre los socios, dado que las firmas distribuyen geográficamente su producción atendiendo a la búsqueda de menores costos totales y aumentan los flujos comerciales, siendo la IED y el comercio complementarios (Blomström & Kokko, 1997;Marszk, 2014). A su vez, puede ocurrir una reducción de los flujos cuando las menores barreras comerciales intrarregionales generan un desplazamiento de IED horizontal por flujos de comercio, siendo la IED y el comercio sustitutos.…”

“…A su vez, puede ocurrir una reducción de los flujos cuando las menores barreras comerciales intrarregionales generan un desplazamiento de IED horizontal por flujos de comercio, siendo la IED y el comercio sustitutos. En este caso, las firmas que previo al AIR atendían a un mercado a través de IED pueden pasar a hacerlo mediante exportaciones desde su país de origen una vez que el AIR está vigente (De Souza & Lochard, 2004;Marszk, 2014).…”