The so-called "globalization" process was an important feature of the global economy in the 90's. This process was characterized by several economic and political phenomena that deepened the integration of national economies to global economy. The growth of the world's foreign direct investment (FDI) flows and the advance of regionalism are two of these phenomena interrelated by many reasons and mechanisms. This present paper aims to evaluate the impact of regional trading agreements over the world's FDI flows, based on the hypothesis that the trading arrangements, which traditionally generate trade, can also have investment creation and diversion effects. A gravity model was estimated for an unbalanced panel constituted by 71 countries for the period 1990-2003. We compared the results from several estimation methods recommended by recent literature like Poisson, pooled cross-section and fixed effects methods. Our results show that trade arrangements tend to increase FDI due to the raise of intra-regional investment and also to the increase of member countries' attractiveness. Nevertheless, even if the gravity model has shown to be adapted for the analysis of the relationship between FDI and regionalization, some methodological issues remain opened.
Regional trading arrangements; Foreign Direct Investment; Gravity equation; Investment creation and diversion
