Political economy of globalization: optimal FDI outflows and structural limits to growth

This study investigates the political economy of growth by examining the interplay between globalization dynamics, trade performance, and wealth creation over the period 1971–2023. Dominant theories in international economics often posit that deeper globalization fosters export expansion and sustained GDP growth. However, the empirical evidence presented here challenges this linear assumption. Findings indicate that higher levels of globalization do not consistently translate into improved export capacity or rising GDP per capita. Instead, structural disruptions—geopolitical tensions, economic shocks, and protectionist trade regimes—frequently constrain anticipated benefits, revealing systemic vulnerabilities within the global economy. Building on interdisciplinary theoretical perspectives from political economy and development studies, the analysis introduces the concept of an optimal investment threshold. This threshold represents a critical level of foreign direct investment (FDI) net outflows, expressed as a percentage of GDP, beyond which the marginal gains of globalization diminish. Exceeding this point can trigger systemic decline, characterized by stagnating GDP growth and weakened trade performance, thereby challenging the sustainability of globalization-driven development models.These insights underscore the need for recalibrated strategies that integrate structural limits into policy design. By promoting inclusive growth through balanced investment flows and coordinated international regulation, the study reframes globalization as a managed process rather than an automatic engine of prosperity. This theoretical contribution advances debates on global economic governance and offers a framework for policymakers to align investment dynamics with long-term development objectives.