Trade and Investment in the Era of Hyperglobalization

The last 70 years have seen important changes in the volume, direction and nature of international trade. In the era of managed globalization, established at the end of the World War II, the global economy became progressively more integrated and trade accounted for continuously rising shares of world output, albeit with international rules and norms designed to allow governments the time and space to manage their integration in line with a broad set of national policy goals. Things changed as capital became more mobile, governments relinquished policy space and the governance of international markets was increasingly left to large multinational firms. This chapter examines the relationship between trade, industrialization and economic development in such a hyperglobalized world economy. It discusses critically conventional trade models and their empirical support and presents a careful examination of more heterodox perspectives. The chapter further analyses the pros and cons of foreign direct investment (FDI) and participation in global value chains (GVCs), with particular attention to the obstacles to diversification and upgrading in these chains and the unequal economic relations that they generate. In this context, it stresses the ongoing importance for developing countries of manufacturing activities, including for export, even in an era of rising services and calls for a pragmatic policy approach and for an active developmental state able to set priorities, manage unavoidable trade-offs, and deal with distributional challenges and conflicts of interest that could hinder a desirable pattern of integration.