The Evolution of the World Economy

The Evolution of the World Economy

The ‘Flying-Geese’ Theory of Multinational Corporations and Structural Transformation

New Horizons in International Business series

Terutomo Ozawa

The world economy is near a critical crossroads, as a rising China, the greatest-ever beneficiary of US-led capitalism, ironically dreams big to replace America's supremacy as a new hegemonic power with a non-liberal world order. This third volume of the trilogy on ‘flying-geese’ theory reformulation explains how capitalism has changed industrial structures across the world. Using structural development economics and political economy analytics the unfolding changes in the global industrial landscape are examined in depth. Will the ‘flying-geese’ formation survive the formation that has produced the East Asian miracle and is hoped to spread to Africa?

Chapter 4: The dynamics of MNC-impacted comparative advantage: relevance to Ricardo’s view on FDI and Samuelson’s skepticism about globalization

Terutomo Ozawa

Subjects: asian studies, asian business, asian economics, business and management, asia business, international business, economics and finance, asian economics, industrial economics, international economics

Abstract

The notion of ‘pro-trade’ versus ‘anti-trade’ foreign direct investment (FDI) was conceptualized by Professor Kiyoshi Kojima (1921_2010) and theoretically formalized in an article in The Hitotsubashi Journal of Economics (Kojima and Ozawa, 1984a/1993; reproduced in the United Nations Library on Transnational Corporations, Vol. 8). The core idea is that multinational corporations’ (MNCs) overseas investments in emerging markets have two opposing effects on the basis for trade: one is to expand comparative advantage (that is, a pro-trade effect), and the other is to reduce comparative advantage (that is, an anti-trade effect). The pro-trade type of FDI is central to a successful ‘flying-geese’ formation. Furthermore, the above theoretical distinction helps clarify both David Ricardo’s (1817) pessimism about the welfare effect of cross-border investment on the home country and Paul Samuelson’s (2004) skepticism of the long-term benefit of free trade to the United States in an age of globalization. References: Kojima, Kiyoshi and Terutomo Ozawa (1984a/1993), ‘Micro- and Macro-Economic Models of Direct Foreign Investment: Toward a Synthesis’, Hitotsubashi Journal of Economics, 25 (1), 1–20. Reproduced in Gray, H. Peter and John H. Dunning (eds) (1993), Transnational Corporations and International Trade and Payments, Vol. 8 of United Nations Library on Transnational Corporations, London: Routledge. Ricardo, David (1817/1888), ‘Principles of Political Economy and Taxation’, in J.R. McClulloch (ed.), The Works of David Ricardo, London: John Murray. Samuelson, Paul A. (2004), ‘Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization’, Journal of Economic Perspectives, 18 (3), 135–46.

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