Strategic trade theory and the use of performance requirements to negotiate with multinational corporations in the third world: Exploring a “new” political economy of north-south relations in trade and foreign investment

Abstract

The climate of foreign direct investment in the Third World shows unprecedented signs of welcome for multinational corporations: more less-developed countries (LDCs) are attempting to incorporate foreign investment into their 5-year plans than ever before; tax rates on international companies are dropping in Asia, Latin America, even Africa; governmental restrictions on multinationals are loosening in dramatic fashion. ∗ There is one exception to the liberalizing trendy however: the imposition of performance requirements on foreign manufacturing investors. ∗ These performance requirements obligate the companies to increase the domestic content of their operations, expand exports, or balance their imports and exports according to a prescribed formula. In conventional economic analysis, performance requirements of this kind (referred to as trade-related investment measures, or TRIMS, in trade negotiations) are a particularly poor policy choice: instead of helping development, they damage the prospects for g...