The Role of Trade Disputes in Shaping Foreign Direct Investment (FDI) Patterns Between the US and EU

EasyChair Preprint 13585, version 2

Abstract

This research delves into the intricate dynamics between trade disputes and Foreign Direct Investment (FDI) patterns, focusing on the transatlantic economic relations between the United States (US) and the European Union (EU). Utilizing a mixed-methods approach that combines econometric analysis with qualitative case studies, this study seeks to elucidate how trade conflicts influence bilateral FDI flows and corporate investment strategies.

Trade disputes, often arising from divergent regulatory standards, tariff impositions, and protectionist policies, have historically played a significant role in shaping the economic landscape between the US and EU. By analyzing data spanning from 1990 to 2023, this research identifies key periods of intensified trade tensions and their corresponding impacts on FDI. The econometric component employs vector autoregression (VAR) models to quantify the short- and long-term effects of trade disputes on FDI inflows and outflows, considering variables such as tariff rates, non-tariff barriers, and retaliatory measures.

The findings suggest a complex interplay where trade disputes both hinder and stimulate FDI. While heightened trade barriers typically discourage cross-border investments by increasing operational costs and market entry risks, they also prompt firms to establish or expand local subsidiaries to circumvent tariffs, leading to a paradoxical increase in FDI in certain sectors. The research also highlights the role of diplomatic negotiations and trade agreements in mitigating adverse effects, with initiatives such as the Transatlantic Trade and Investment Partnership (TTIP) exemplifying efforts to foster a more stable investment environment.

Keyphrases: Economic Integration, Foreign Direct Investment (FDI), Multinational Corporations, Tariffs, Trade Policy, Transatlantic Trade and Investment Partnership (TTIP), US-EU economic relations, Vector Autoregression (VAR), keywords, non-tariff barriers, trade disputes

@booklet{EasyChair:13585,
  author    = {Kayode Sheriffdeen},
  title     = {The Role of Trade Disputes in Shaping Foreign Direct Investment (FDI) Patterns Between the US and EU},
  howpublished = {EasyChair Preprint 13585},
  year      = {EasyChair, 2024}}