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Trade Liberalization in a Globalizing World

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  • Faini, Riccardo

Abstract

Globalization is not only about the rise of trade, FDI, and migration. It is also about the changing linkages among these flows. The main findings of this Paper can be summarized as follows. First, at least in the 1990s, import trade liberalization fostered not only trade but also inward investment, confirming that trade and FDI toward developing countries have become largely complements. Second, the presence of a skilled labour force is a relevant factor to attract FDI. Moreover, trade policies and the stock of FDI have a positive impact on the incentives to invest in education. This set of findings highlights the possibility of a low equilibrium trap where the lack of human capital discourages FDI and inadequate investment from abroad limits the domestic incentives to acquire education. Rich countries, by encouraging skilled immigration from relatively poor countries, are definitely aggravating such a risk. Third, we find little evidence supporting the contrary argument of a brain gain, where the possibility for skilled workers to migrate abroad raises the return to education and the investment in human capital. Overall, our results highlight the need to study globalization in a fully integrated way, not just as the sum of its different components. They also show that backtracking in one area (e.g. trade) feeds negatively on other areas (e.g. FDI).

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4665.

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Date of creation: Oct 2004
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Handle: RePEc:cpr:ceprdp:4665

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Keywords: FDI; migration; trade;

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References

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  1. Linda S. Goldberg & Michael W. Klein, 1999. "International Trade and Factor Mobility: An Empirical Investigation," NBER Working Papers 7196, National Bureau of Economic Research, Inc.
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  7. Stark, Oded & Helmenstein, Christian & Prskawetz, Alexia, 1998. "Human capital depletion, human capital formation, and migration: a blessing or a "curse"?," Economics Letters, Elsevier, vol. 60(3), pages 363-367, September.
  8. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment: Updates and Implications," CID Working Papers 42, Center for International Development at Harvard University.
  9. Blomström, Magnus & Kokko, Ari, 2003. "Human Capital and Inward FDI," EIJS Working Paper Series 167, The European Institute of Japanese Studies.
  10. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2001. "Expansion Strategies of U.S. Multinational Firms," BEA Papers 0012, Bureau of Economic Analysis.
  11. Bruce A. Blonigen & Miao Wang, 2004. "Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI Studies," Working Papers and Research 0903, Marquette University, Center for Global and Economic Studies and Department of Economics.
  12. Collins, W-J & O'Rourke, K-H & Williamson, J-G, 1997. "Were Trade and Factor Mobility Substitutes in History?," Papers 97/15, College Dublin, Department of Political Economy-.
  13. Beine, Michel & Docquier, Frédéric & Rapoport, Hillel, 2003. "Brain Drain and LDCs' Growth: Winners and Losers," IZA Discussion Papers 819, Institute for the Study of Labor (IZA).
  14. Jeffrey A. Frankel & Andrew K. Rose, 2000. "Estimating the Effect of Currency Unions on Trade and Output," NBER Working Papers 7857, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Kugler, Maurice & Rapoport, Hillel, 2005. "Skilled emigration, business networks and foreign direct investment," Discussion Paper Series In Economics And Econometrics 0503, Economics Division, School of Social Sciences, University of Southampton.
  2. Enrico Marelli, 2006. "Globalisation and local labour markets," International Review of Economics, Springer, vol. 53(1), pages 16-48, March.
  3. Checchi, Daniele & De Simone, Gianfranco & Faini, Riccardo, 2007. "Skilled Migration, FDI and Human Capital Investment," IZA Discussion Papers 2795, Institute for the Study of Labor (IZA).
  4. Artjoms Ivlevs, 2006. "Migration and Foreign Direct Investment in the Globalization Context: the Case of a Small Open Economy," Development Working Papers 209, Centro Studi Luca d\'Agliano, University of Milano.
  5. Heuer, Nina, 2011. "The effect of occupation-specific brain drain on human capital," University of Tuebingen Working Papers in Economics and Finance 7, University of Tuebingen, Faculty of Economics and Social Sciences.
  6. Piotti, Geny, 2007. "Why do companies relocate? The German discourse on relocation," MPIfG Discussion Paper 07/14, Max Planck Institute for the Study of Societies.
  7. Miren Lafourcade & Elisenda Paluzie Hernandez, 2005. "European Integration, FDI and the Internal Geography of Trade: Evidence from Western European Border Regions," Working Papers in Economics 145, Universitat de Barcelona. Espai de Recerca en Economia.
  8. Aroca Gonzalez, Patricio & Maloney, William F., 2005. "Migration, trade, and foreign investment in Mexico," Policy Research Working Paper Series 3601, The World Bank.

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