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Trade Liberalization in a Globalizing World

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  • Faini, Riccardo

    (University of Rome Tor Vergata)

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 the paper can be summarized as follows. First, at least in the nineties, 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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1406.

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Length: 43 pages
Date of creation: Nov 2004
Date of revision:
Handle: RePEc:iza:izadps:dp1406

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Keywords: FDI; migration; trade;

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  1. Michel Beine & Frédéric Docquier & Hillel Rapoport, 2001. "Brain drain and economic growth: theory and evidence," ULB Institutional Repository 2013/10449, ULB -- Universite Libre de Bruxelles.
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  5. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, Elsevier, vol. 45(1), pages 115-135, June.
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  7. Bruce A. Blonigen & Miao Wang, 2004. "Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI Studies," Working Papers and Research, Marquette University, Center for Global and Economic Studies and Department of Economics 0903, Marquette University, Center for Global and Economic Studies and Department of Economics.
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  12. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment: Updates and Implications," CID Working Papers, Center for International Development at Harvard University 42, Center for International Development at Harvard University.
  13. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2001. "Expansion Strategies of U.S. Multinational Firms," BEA Papers, Bureau of Economic Analysis 0012, Bureau of Economic Analysis.
  14. Oded Stark & Christian Helmenstein & Alexia Prskawetz, 1998. "Human Capital Depletion, Human Capital Formation, and Migration: A Blessing in a "Curse"?," Departmental Working Papers, Chinese University of Hong Kong, Department of Economics _096, Chinese University of Hong Kong, Department of Economics.
  15. Shatz, Howard J. & Venables, Anthony J., 2000. "The geography of international investment," Policy Research Working Paper Series 2338, The World Bank.
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  19. repec:fth:geneec:97.01 is not listed on IDEAS
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Citations

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Cited by:
  1. Daniele Checchi & Gianfranco De Simone & Riccardo Faini, 2007. "Skilled Migration, FDI and Human Capital Investment," Development Working Papers, Centro Studi Luca d\'Agliano, University of Milano 235, Centro Studi Luca d\'Agliano, University of Milano.
  2. 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, Universitat de Barcelona. Espai de Recerca en Economia 145, Universitat de Barcelona. Espai de Recerca en Economia.
  3. 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.
  4. Aroca Gonzalez, Patricio & Maloney, William F., 2005. "Migration, trade, and foreign investment in Mexico," Policy Research Working Paper Series 3601, The World Bank.
  5. 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.
  6. Maurice Kugler & Hillel Rapoport, 2005. "Skilled Emigration, Business Networks and Foreign Direct Investment," CESifo Working Paper Series 1455, CESifo Group Munich.
  7. Enrico Marelli, 2006. "Globalisation and local labour markets," International Review of Economics, Springer, Springer, vol. 53(1), pages 16-48, March.
  8. Artjoms Ivlevs, 2006. "Migration and Foreign Direct Investment in the Globalization Context: the Case of a Small Open Economy," Development Working Papers, Centro Studi Luca d\'Agliano, University of Milano 209, Centro Studi Luca d\'Agliano, University of Milano.

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