Trading Blocs, Trade Liberalisation and Foreign Direct Investment

Abstract

Two of the most interesting phenomena in the contemporary world economy are the explosive growth of foreign direct investment (FDI) and the emergence of new and/or the extension of existing regional trading blocs. In the 1950s and 1960s, a first phase of regional integration saw the formation of the European Economic Community (EEC) and the European Free Trade Area (EFTA), together with a number of other short-lived trading blocs in Latin America, the Caribbean and Africa. A second phase in the late 1980s and early 1990s has brought initiatives not only in Europe and Latin America, but also in North America, Australasia and South-East Asia. Furthermore, this new phase of ‘regionalism’ has generated considerable concern about whether the relatively open, multilateral world trading system will be superseded by a small number of large, relatively closed regional blocs.¹