Kiel Working Papers, Kiel Institute for World Economics
No 1687:
Trade protection during the crisis: Does it deter foreign direct investment?
Holger Görg and Philipp Labonte
Abstract: This paper looks empirically at the implications that
protectionist measures implemented during the current crisis may have had
for a country’s ability to attract foreign direct investment. The research
utilizes data on such measures that is available from Global Trade Alert,
combined with bilateral FDI data between OECD countries and a large number
of partner countries for 2006 to 2009. This allows us to examine the short
run effect that protectionist measures may have had on bilateral FDI flows.
The verdict from this analysis is clear: a country that implements new
protectionist measures may expect that this may result in lower foreign
direct investment inflows into the economy. The point estimates from our
preferred specifications suggest that, depending on the empirical model,
the implementation of a trade protection measure is associated with about
40 to 80 percent lower FDI inflows. Trade protection does not appear to
have any implications for the country’s FDI outflows, however. The negative
effect on FDI inflows does not appear to be due to direct investment
measures but rather to actions related to intellectual property rights
protection and other more trade related measures
Keywords: FDI, protection, financial crisis; (follow links to similar papers)
JEL-Codes: F23,; F13; (follow links to similar papers)
27 pages, March 2011
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