Understanding the Relationship between NTMs and FDI in Asia and the Pacific: A Case Study Analysis

Working paper18 Sep 2019

A growing body of research has developed since the global economic and financial crisis analyzing the relationship between NTMs and trade. However, much less attention has been dedicated to investigating the relationship between NTMs and foreign direct investment (FDI). Nonetheless, as trade and investment are intrinsically linked to each other, either as complements or substitutes, it stands to reason that NTMs can also either directly or indirectly influence the decision of firms to invest abroad and this should also be reflected in aggregate investment patterns. The following paper conceptually outlines the effects NTMs may have on FDI, and then explores these effects in three qualitative case studies in the Asia-Pacific region. The general conclusions that can be drawn from the case studies is that NTMs do indeed have an effect on FDI, and the extent to which that effect is positive or negative largely depends on the type and scope of the NTM, the industry and political economic context in which it is implemented, and the procedures followed for implementation. Therefore, NTMs need to be carefully crafted, and continuously monitored and evaluated. Furthermore, because some NTMs may have the capacity to encourage FDI levels, this could prove increasingly relevant to policy makers aiming to generate investment in key SDG sectors.