What Makes Poor Countries Poor?

What Makes Poor Countries Poor?

Institutional Determinants of Development

Michael J. Trebilcock and Mariana Mota Prado

This important book focuses on the idea that institutions matter for development, asking what lessons we have learned from past reform efforts, and what role lawyers can play in this field.

Chapter 7: International Trade, Foreign Direct Investment and Development

Michael J. Trebilcock and Mariana Mota Prado

Subjects: development studies, law and development, economics and finance, institutional economics, law and economics, law - academic, law and development, law and economics


INTRODUCTION In the next two chapters, we address features of the international economic order that bear importantly on the economic prospects of developing countries: – trade and foreign direct investment in this chapter, and foreign aid in Chapter 8. To put these features in perspective, global exports from developing countries amounted to US$1 717.7 billion in 2000.1 In 2008, investment inflows to developing countries reached US$517 billion,2 and official development assistance (foreign aid) US$119.8 billion.3 These figures show that international trade and foreign direct investment (FDI), are clearly the most substantial sources of external income for developing countries. From the perspective of developed countries, they can either import goods or services from low-wage developing economies (like China or India), or they can maintain very liberal immigration policies with respect to not only skilled workers but also unskilled workers, and maintain relatively low-wage industries in developed countries. Alternatively, they can view trade and FDI as complements and invest in manufacturing facilities in low-wage developing countries and use these as an export platform either to their home country or other developed or developing economies around the world (as exemplified by the growth of global supply chains and intra-firm trade). Or, again, they can view trade and FDI as William R. Cline, Trade Policy and Global Poverty (Washington DC: Peterson Institute, 2004) at 20. 2 UNCTAD, ‘Assessing the impact of the current financial and economic crisis on global FDI flows’, 19 January 2009, available at http://www.parl.gc.ca/Content/ LOP/ResearchPublications/prb0710-e.htm. 3 Jennifer...

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