Do Regional Trade Agreements Increase Bilateral Greenfield Investment?

Using bilateral flow data among 25 Organizations for Economic Co-operation and Development and 45 high-income and 95 non-high income countries spanning 2003 similar to 2012, we empirically investigate how bilateral greenfield investment responds to common membership in Regional Trade Agreements. Unlike the Regional Trade Agreement-trade nexus, there have been very few studies that investigate the effects of Regional Trade Agreements on bilateral Foreign Direct Investment flows. Our chosen model specifications include Poisson Pseudo-Maximum-Likelihood estimator with bilateral and country-time fixed effects. We find that common membership in Regional Trade Agreements discourages greenfield investment in Organization for Economic Co-operation and Development-high income country pairs whereas they promote non-high income country pairs. We also find that lead and lagged Regional Trade Agreement common membership discourages greenfield investment in Organization for Economic Co-operation and Development-high-income pairs while it encourages non-high-income country pairs.