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Trade liberalization in a globalizing world

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  • Riccardo Faini

    (Università di Roma Tor Vergata, CEPR, IZA and CSLA))

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).

Suggested Citation

  • Riccardo Faini, 2004. "Trade liberalization in a globalizing world," Development Working Papers 192, Centro Studi Luca d'Agliano, University of Milano.
  • Handle: RePEc:csl:devewp:192
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    References listed on IDEAS

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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;Happiness Economics and Interpersonal Relations (HEIRS), vol. 53(1), pages 16-48, March.
    3. Daniele Checchi & Gianfranco De Simone & Riccardo Faini, 2007. "Skilled Migration, FDI and Human Capital Investment," UNIMI - Research Papers in Economics, Business, and Statistics unimi-1067, Universitá degli Studi di Milano.
    4. Kugler, Maurice & Rapoport, Hillel, 2005. "Skilled emigration, business networks and foreign direct investment," Discussion Paper Series In Economics And Econometrics 503, Economics Division, School of Social Sciences, University of Southampton.
    5. 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.
    6. 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.
    7. 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.
    8. Cristian Ugarte, 2014. "Weak Links And Diversification," UNCTAD Blue Series Papers 67, United Nations Conference on Trade and Development.
    9. 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.
    10. Aroca Gonzalez, Patricio & Maloney, William F., 2005. "Migration, trade, and foreign investment in Mexico," Policy Research Working Paper Series 3601, The World Bank.

    More about this item

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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