Regional Trade Agreements as Structural Networks: Implications for Foreign Direct Investment Decisions

The last few decades have witnessed a proliferation of preferential trade agreements and regional trading blocks. Yet little research has been done to integrate trading block considerations into country attractiveness and foreign direct investment decisions. In this paper, we show how network analysis can be used to study, track, and forecast the structural changes among countries in regional trade agreements. Using intra-regional trade data, we analyze the overall trade structure and the relative positions of countries belonging to the European Union. The results show that certain countries offer better opportunities for within-EU market penetration than do others. Our approach provides managers with additional criteria for evaluating country attractiveness, therefore, allowing for more comprehensive and informed FDI decisions to be made.