Investment in Regions

Abstract

The discussion in Chapter 8 suggested a range of effects of a region on investment, with or without special arrangements. Unfortunately, the direction of these effects is ambiguous, making it more difficult than for trade to find a simple measure of integration or intensity. Conventional trade creation and increasing demand will increase investment within the region, by both regional and external investors. This could suggest an increased share for the region in total world investment, which might include an increased share within the region by regional investors if they have advantages of proximity and familiarity. Their relative importance increases with any decline in artificial barriers. Regional investment is more likely to rise if there is institutional preference for regional investors. Investment outside the region by regional (and foreign) investors would rise less rapidly, and it is possible that this could affect regional investors more strongly, lowering their share in external investment. Investment to exploit the increased effective barriers to the rest of the world could increase the role of foreign investment in the region, while the reduced need for this within the region could reduce intra-regional foreign investment. Any general reduction in barriers to foreign investment could increase both regional and non-regional investment.