Regional Integration and FDI: A focus on Customs Unions

Lorah Basolile Medete, Fordham University


This study investigates the effect of joining customs unions on member countries' FDI inflows. Panel data analysis of a restricted sample of 22 countries and large sample of 209 countries is conducted over the period 1970 to 2007. In both the restricted and large sample we find that for most part, joining a customs union has positive effect on FDI inflows that member countries receive. For the restricted sample, being a member of a customs union increase the average FDI/GDP ratio by between 2 and 2.6 percent. For the large sample it is between 1 and 2.6 percent after controlling for other relevant variables. We also find that openness is an important factor attracting FDI inflows. Abundance of natural resources, particularly fuels, has an important effect on both FDI inflows and how other important factors like average income and economic growth affect FDI inflows. In addition, we found that the length of time that a country has been in a CU is also important.

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Recommended Citation

Medete, Lorah Basolile, "Regional Integration and FDI: A focus on Customs Unions" (2010). ETD Collection for Fordham University. AAI3431920.