The role of foreign direct investment in regional economic integration

M.Comm.This mini dissertation is a literature review that deals with trade liberalisation in the form of Regional Trade Agreements. It focuses on the importance of FDI for economic growth of developing countries. This study investigates ‘new regionalism’ critically. New regionalism suggests that economic growth may be possible if developing countries form trading blocs, which partner with a larger economy and engage in policy reforms aimed at attracting FDI. The study concludes that a trading bloc may possibly attract FDI and create export and growth opportunities. However, the developing countries should be able to manage all aspects associated with REI. These aspects include the negative effects of trade diversion, the impact of adjustment costs, and the administrative requirements of managing RoO in the landscape of highly proliferated RTAs. In addition, FDI will only result in the required growth if the developing economy is able to absorb and assimilate the new technologies and production methods FDI is expected to bring to its shores. Moreover, the FDI should be targeted so as to develop industries of comparative advantage. In order to absorb these benefits a high level of skilled labour is required as well as support structures to assist with training and development of the labour force. In addition, new rules under the WTO is restrictive in the latitude it allows developing countries to assimilate the production methods and technologies of MNCs. The research concludes that careful planning and policy development is required prior to REI if it is to have a hope of succeeding in its goals