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Controlled Openness and Foreign Direct Investment

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  • Aizenman, Joshua
  • Yi, Sang-Seung

Abstract

The paper investigates why a developing country may adopt a partial reform. A country is considered where the ruling elite (referred to as state capital) prevents the entry of foreign capital, and taxes the private sector before reform. A higher productivity of foreign capital always increases the attractiveness of a partial reform under which state capital can control the inflow of foreign capital, but can reduce the attractiveness of a full reform under which the entry of foreign capital is unregulated. Hence, state capital's control over foreign capital may be a necessary condition for the reform to take place at all. Copyright 1998 by Blackwell Publishing Ltd

Suggested Citation

  • Aizenman, Joshua & Yi, Sang-Seung, 1998. "Controlled Openness and Foreign Direct Investment," Review of Development Economics, Wiley Blackwell, vol. 2(1), pages 1-10, February.
    • Handle: RePEc:bla:rdevec:v:2:y:1998:i:1:p:1-10
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    References listed on IDEAS

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    1. Dani Rodrik, 1992. "The Rush to Free Trade in the Developing World: Why So Late? Why Now? Will it Last?," NBER Working Papers 3947, National Bureau of Economic Research, Inc.
    2. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-1187, December.
    3. Feldman, David H & Gang, Ira N, 1996. "Revenue Motives and Trade Liberalization," Review of International Economics, Wiley Blackwell, vol. 4(3), pages 276-281, October.
    4. Romer, Paul, 1994. "New goods, old theory, and the welfare costs of trade restrictions," Journal of Development Economics, Elsevier, vol. 43(1), pages 5-38, February.
    5. Shang-Jin Wei, 1997. "Gradualism versus Big Bang: Speed and Sustainability of Reforms," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1234-1247, November.
    6. Gelb, Alan & Jefferson, Gary & Singh, Inderjit, 1993. "Can Communist economies transform incrementally? China's experience," Policy Research Working Paper Series 1189, The World Bank.
    7. Dani Rodrik, 1996. "Understanding Economic Policy Reform," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 9-41, March.
    8. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-1188, December.
    9. Jefferson, Gary H & Rawski, Thomas G & Yuxin, Zheng, 1992. "Growth, Efficiency, and Convergence in China's State and Collective Industry," Economic Development and Cultural Change, University of Chicago Press, vol. 40(2), pages 239-266, January.
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    Cited by:

    1. Ramin Dadasov & Philipp Harms & Oliver Lorz, 2013. "Financial integration in autocracies: Greasing the wheel or more to steal?," Economics of Governance, Springer, vol. 14(1), pages 1-22, February.
    2. Klaus Desmet & Felipe Meza & Juan A. Rojas, 2008. "Foreign direct investment and spillovers: gradualism may be better," Canadian Journal of Economics, Canadian Economics Association, vol. 41(3), pages 926-953, August.
    3. Sebastian Claro, 2009. "FDI Liberalization as a Source of Comparative Advantage in China," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 740-753, November.

    More about this item

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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