Regional Trade Integration and Multinational Firm Strategies

Robert J. Barro, Jong Wha Lee

Research output: Chapter in Book/Report/Conference proceedingChapter

5 Citations (Scopus)


This chapter analyzes the effects of the formation of a regional trade agreement on the level and nature of multinational firm activity. This chapter examines aggregate data that capture the response of United States (US) multinational firms to the formation of the Association of Southeast Asian Nations (ASEAN) free trade agreement. Observed patterns guide the development of a model in which heterogeneous firms from a source country decide how to serve two foreign markets. Following a reduction in tariffs on trade between the two foreign countries, the model predicts growth in the number of source-country firms engaging in foreign direct investment, growth in the size of affiliates that are active in reforming countries both before and after the tariff reduction, and an increase in the extent to which the sales of affiliates in reforming countries are directed toward other reforming countries. Analysis of firm-level responses to the creation of the ASEAN free trade agreement yields results that are consistent with these predictions.

Original languageEnglish
Title of host publicationCosts and Benefits of Economic Integration in Asia
PublisherOxford University Press
ISBN (Electronic)9780199896783
ISBN (Print)9780199753987
Publication statusPublished - 2011 Sept 22


  • Asia
  • Heterogeneous firms
  • Multinational firms
  • Regional integration
  • Regionalism
  • Trade agreements
  • Trade creation
  • Trade diversion

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)


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