A World Trade Organization for the 21st Century

A World Trade Organization for the 21st Century

The Asian Perspective

ADBI series on Asian Economic Integration and Cooperation

Edited by Richard Baldwin, Masahiro Kawai and Ganeshan Wignaraja

The global financial crisis exposed great shortcomings in the global economic architecture, generating extensive international debate about possible remedies for these deficiencies. The postwar global architecture was guided by major developed economies, centered around the IMF, the GATT, and the World Bank. Today, the balance of economic power is shifting toward emerging economies. Global governance and economic policy must reflect this shift. With contributions from prominent Asian and international trade experts, this book critically examines key changes occurring in the world trading system and explores policy implications for Asia.

Chapter 13: The role of foreign direct investment flows and a possible multilateral agreement

Yunling Zhang and Rongyan Wang

Subjects: asian studies, asian development, asian economics, economics and finance, asian economics, international economics


Foreign direct investment flows play a key role in globalization. The size of FDI flows has increased dramatically since the 1990s, albeit with some ups and downs. Foreign direct investment brings capital, technology, and management to the host economies; rationalizes industrial allocation; and creates supply–demand chains both on the regional and the global level. On the other hand, FDI could increase cross-border trade since industrial reallocation and supply–demand chains create multiple routes of exchange of goods and services. As a cross-border activity, FDI is supported by business incentives, business strategies, the host market environment, and in particular by FDI-friendly policy. In general, all economies have now adopted an FDI-friendly policy and welcome inflow of FDI, since it not only meets the gap in investment, but also encourages competition and improves economic efficiency. This is why FDI flows have complex incentives and directions. The incentives include those for production networks, for market access, or for lowering business costs, while the direction could be either among developed economies, from developed to developing economies, among developing economies, or even from developing to developed economies. Foreign direct investment is an integrated part, and the most active factor, of global economic activities. Given that the global economy is in a period of post-financial/ economic crisis recovery and restructuring, it is crucial to improve the environment for FDI so to facilitate FDI flows. However, there are still many barriers that hamper FDI flows, the major barrier being policy restrictions.

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