FDI Liberalization Research Articles

Can China Harness Globalization to Reap Carbon Savings? Modeling International Technology Diffusion in a Multi-Region Framework

This paper examines the effect of globalization, particularly international technology diffusion (TD), on China’s domestic carbon savings. Building on a multi-region numerical model, this study considers both indigenous RD (2) Trade and FDI liberalization (economic globalization) facilitates economic integration and production growth, yet at the cost of higher emissions levels without carbon savings (scale effect); (3) Removal of foreign TD barriers (knowledge globalization) acquires the benefits of domestic carbon savings (technique effect); (4) Domestic climate regulation create the composition effect by inducing indigenous R&D and foreign TD to shift economic composition, hence helping partially mitigate climate compliance cost.

Economic Integration, Inequality and Growth: Latin America Versus the European Economies in Transition

The paper first summarizes the theoretical and empirical literature on the growth and income inequality impact of the liberalization of trade, FDI, portfolio flows, and migration over 1980-2000. It then compares the inequality and growth performance recorded in Latin America over 2000-2008 with that recorded in the fast liberalizing European economies in transition during the same period. The paper argues that the latter region recorded growth rates of GDP broadly slightly higher than those of Latin America, but experienced greater growth instability and a rise in income inequality. The paper suggests that such divergent performance is explained by differences in policies

The evolution of value added in assembly operations: the case of China and Mexico

China and Mexico embarked, around the early 1980s, on the process of liberalization of trade and FDI and established some export oriented industries through assembly operations with the help of FDI. Both countries had the same objective of increasing value added in export processing industries. The authors examine the comparative achievements of their common objectives in the light of the export oriented strategy hypothesis. Applying the indicators of Revealed Comparative Advantage to exports and imports, the authors show that while there are some similarities in the performance of the two countries, there are also striking differences. Both have managed to increase manufactured exports, particularly in IT products, significantly during 1990s. Both, but particularly China, have developed comparative advantage in export and production of many industries, which had been initiated through import substitution. However, Mexico has achieved little, compared with China, in increasing value added in exports and in developing comparative advantage in production in assembly operations. Further, unlike China, since the early years of the 2010 decade it has not been able to sustain its rapid export growth.

FDI Liberalization as a Source of Comparative Advantage in China

AbstractTwo features of China's trade patterns suggest that elements beyond factor abundance explain its export performance. The high penetration in world markets of labor‐intensive products has been accompanied by: (i) a high share in exports of productivity‐advanced foreign‐invested enterprises (FIEs) and (ii) a high penetration of FIEs in labor‐intensive sectors. We show that FDI liberalization endogenously introduces Ricardian features to an otherwise standard endowment‐based trade model, strengthening China's natural comparative advantage in labor‐intensive products. We discuss how capital accumulation, productivity growth, rural–urban migration, incentives for foreign investment, and distortions in financial markets affect this bias.

Thai Trade Policy: From Non‐discriminatory Liberalisation to FTAs

FTAs have dominated Thai trade policy recently, reflecting the general trend in east Asia. But they also reflect domestic political changes, especially the decision‐making style of the Thaksin government. Thai FTAs have become very politicised. In particular, the US‐Thai FTA negotiations have run into a storm of domestic protest. The first section of the paper surveys the national trade‐policy framework. It highlights the slowdown of unilateral trade and FDI liberalisation after the Asian crisis, though a descent back into protectionism was successfully resisted. Thailand punches well below its weight in the WTO, and not very forcefully in ASEAN, because political attention and negotiating resources have switched to FTAs. The second section identifies the main actors in Thai trade policy, and briefly describes the trade‐policy decision‐making process as well as recent developments during the Thaksin administration. The following central section deals with Thailand's FTAs. These have been driven by vague foreign‐policy goals, while credible economic strategy has been lacking. The residual commercial logic is narrowly mercantilist and ‘trade‐light’, seeking an exchange of concessions in a narrow range of sectors rather than comprehensive, trade‐creating FTAs. Weak and partial FTAs are the result. The sole exception has been the Thailand‐USA FTA negotiations, as the USA wants a strong, deep‐integration FTA. However, negotiations were suspended in 2006 in the wake of the Thai political crisis. Overall, Thai trade policy post‐Asian crisis is highly unbalanced. It stands on a shaky FTA leg, while the other WTO leg has gone to sleep and the ASEAN arm is limp. Above all, core unilateral liberalisation and related regulatory reform are lacking.

The Impacts of East Asia FTA: A CGE Model Simulation Study

In light of the on-going discussions of the possibility of an East Asia FTA, this paper attempts to estimate the impacts of an East Asia FTA using a Computable General Equilibrium (CGE) model. Although most previous simulation studies on the impacts of FTAs focus only on the liberalization of trade in goods, our paper attempts to take into account other aspects of FTAs such as capital accumulation and trade and investment facilitation measures. Our simulation analysis finds that an ASEAN 3 FTA is the most desirable FTA of eight hypothetical FTAs in East Asia to all member countries at the macro level. At the same time, our results demonstrate the significant impacts of capital accumulation and various trade and investment facilitation and coordination programs. At the sectoral level, many sectors gain in terms of output and trade. Although some sectors in certain countries indeed lose in terms of output as a result of an ASEAN 3, most of them experience increases in both exports and imports, even if output declines. These results indicate that the larger the coverage in terms of membership as well as contents such as trade and FDI liberalization and facilitation, and economic cooperation is, the greater benefits can be accrued to the members.

“Reform and Openness”: Why China's Economic Reforms Have Delayed Democracy

Most theories that seek to explain democratization look to changes in the economy as the precursor to significant political liberalization, locating the main causal factor in either severe economic crisis or rapid economic growth. In the Chinese context, by contrast, the Communist Party has extricated itself from the socialist social contract with the urban working class without losing its grip on political power. Moreover, China has maintained a rapid pace of economic growth for over twenty-five years without significant political liberalization. Comparative analysis of China's post-1978 reform policies yields insights both across types of socialist transition, comparing China with Eastern Europe and Russia, and across time, comparing China with other high-growth East Asian economies. A key factor in China's ability to reform the economy without sacrificing political control is the timing and sequencing of its foreign direct investment (FDl) liberalization. There are two key variables that are important to this comparative analysis: China's pattern of ownership diversification and China's mode of integration into the global economy. The article relates these two variables to the success of economic change without political liberalization, in particular, how FDI liberalization has affected relations between workers and the ruling Communist Party. “Reform and openness” in this context resulted in a strengthened Chinese state, a weakened civil society (especially labor), and a delay in political liberalization.

The Obsolescing ‘Bargaining Model’? MNC-Host Developing Country Relations Revisited

The traditional bargaining model of MNC-host developing country relations has become obsolete. Today, those relations are better understood as the result of a two-tier, multi-party bargaining process. Tier-1 bargaining, between the governments of host and home countries, occurs bilaterally or through multilateral institutions. It produces macro rules on FDI that affect micro negotiations in Tier-2 (per the traditional bargaining model). The extent of FDI liberalization resulting from Tier-1 bargaining varies predictably across home-host country pairs and industries. Suggestions for testing the two-tier bargaining model are also presented.

Technology, Trade Policy and Competitiveness: 'Learning' in East Asia & Its Lessons for India

This paper has examined the major issues relating to the technology dimensions of competitveness confronting India, as it globalises its economy through a trade and FDI liberalisation policy package. Drawing from a wide range of available evidence from East Asia, the paper has argued for a strategic approach, rather than a passive market orientation approach. The outstanding success of Japan and S. Korea was based on the ability to create dynamic advantage in high value, fast growing industries. Their approach to technology has been based on the build up of technological capability, while remaining open to market competition. There has been a remarkable strategic focus in technological effort to increase industrial productivity. The relation between the public and private components of technological effort has been synergistic. The contrast with India has been highlighted, to draw out the implicit lessons. The paper also examines evidence related to the Indian, Korean and ASEAN experience with respect to technology transfer to show that the link between liberalisation, FDI, export growth and technology development is complex, and can go counter to the build up of technological capacity. The paper closes with an assessment of the positive and negative aspects of the limited evidence concerning the technology posture of Indian firms in post 1991 period. While some indications are encouraging, the attainment of international competitiveness will require much more of both strategy and effort.

Multinational corporations and the North American Free Trade Agreement

Theoretical Perspectives Country Specific Analyses The U.S. Experience with Outward and Inward FDI Canada and Mexico FDI, Growth, and Technology Transfer The Free Trade Agreements FDI, NAFTA, and Economic Liberalization Conclusions