Regional Integration and the (Re)Distrubtion of Foreign Direct Investment between Asymmetric Hosts

We analyze the impact of economic integration on the activities of multinational enterprises in a general equilibrium model with asymmetric countries. Foreign direct investment (FDI) inflows are likely only to the extent that multinationals have not already shifted production to the integrating region. Integration could lead to industry rationalization that reduces FDI if tariffjumping is prevalent before liberalization. We find a magnification effect of the level of external protection on both multinational entry and exit. Low-protection countries will have greater MNE entry than high-protection countries due to wage differences.