An Economic Impact Analysis of the ASEAN-Australia-New Zealand Free Trade Area on Foreign Direct Investment

초록

This paper investigates the impact of the ASEAN-Australia-New Zealand FTA (AANZFTA) on the flow of foreign direct investment (FDI) into AANZFTA members. To determine the overall effect of the AANZFTA on FDI inflow, this study utilizes the knowledge–capital model with panel data (2001–2019) while considering the different levels of economic diversification among AANZFTA members and both the vertical and horizontal motivations of multinational corporations (MNCs). The results suggest that, on average, the AANZFTA promotes a higher level of trade at the expense of some FDI for its members, although sufficiently large production cost differences compared with FDI parent countries allow them to attract net positive FDI inflow by participating in the AANZFTA. Both vertical FDI and horizontal or export platform FDI entered the member countries, with the type of FDI inflow depending on the level of economic diversification of the member countries. In addition, it turns out that higher levels of industrialization and the promotion of an open and investment-friendly environment in host countries, especially in developing countries, by upgrading institutional quality and fostering a more diversified economic structure would contribute to attracting more FDI from participating in the AANZFTA.

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