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Trade, Foreign Investment, and Industrial Policy

Author

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  • Harrison, Ann E.
  • Rodriguez-Clare, Andres

Abstract

During the last three decades, developing countries have made enormous strides in opening up their protected domestic markets to international trade and foreign investment. Yet most countries have not simply opened up their markets. They have also instituted a range of policies to encourage exports, attract foreign direct investment(FDI), promote innovation, and favor some industries over others. This leads to the following question: is openness to trade and FDI alone sufficient to achieve high growth rates in developing countries? If harnessing the gains from globalization requires additional policies, can we identify them? While some types of complementary policies, such as building roads and ports, are not controversial, others are. Bhagwati's suggestion to "attract foreign funds" implies tilting incentives in favor of foreign investors, which means abandoning policy neutrality. Our goal in this chapter is to explore the popular but controversial idea that developing countries benefit from abandoning policy neutrality vis-a-vis trade, FDI and resource allocation across industries.

Suggested Citation

  • Harrison, Ann E. & Rodriguez-Clare, Andres, 2009. "Trade, Foreign Investment, and Industrial Policy," MPRA Paper 15561, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:15561
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    File URL: https://mpra.ub.uni-muenchen.de/15561/2/MPRA_paper_15561.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Luosha Du & Ann Harrison & Gary Jefferson, 2011. "Do Institutions Matter for FDI Spillovers? The Implications of China’s “Special Characteristics”," Working Papers 33, Brandeis University, Department of Economics and International Businesss School, revised Sep 2012.
    2. Carson, Matthew., 2010. "Guiding structural change : the role of government in development," ILO Working Papers 994550973402676, International Labour Organization.
    3. Nathan, Max & Rosso, Anna, 2015. "Mapping digital businesses with big data: Some early findings from the UK," Research Policy, Elsevier, vol. 44(9), pages 1714-1733.
    4. Marcel Schroder, 2013. "Should developing countries undervalue their currencies?," Departmental Working Papers 2013-12, The Australian National University, Arndt-Corden Department of Economics.
    5. Godart, Olivier N. & Görg, Holger, 2013. "Suppliers of multinationals and the forced linkage effect: Evidence from firm level data," Kiel Working Papers 1822, Kiel Institute for the World Economy (IfW).
    6. Korinek, Anton & Servén, Luis, 2016. "Undervaluation through foreign reserve accumulation: Static losses, dynamic gains," Journal of International Money and Finance, Elsevier, vol. 64(C), pages 104-136.
    7. Nathan, Max & Rosso, Anna, 2014. "Mapping information economy businesses with big data: findings from the UK," LSE Research Online Documents on Economics 60615, London School of Economics and Political Science, LSE Library.
    8. Nathan, Max & Rosso, Anna, 2014. "Mapping information economy businesses with big data: findings from the UK," LSE Research Online Documents on Economics 60615, London School of Economics and Political Science, LSE Library.
    9. Theodore H. Moran, 2014. "Foreign Investment and Supply Chains in Emerging Markets: Recurring Problems and Demonstrated Solutions," Working Paper Series WP14-12, Peterson Institute for International Economics.
    10. Schröder, Marcel, 2013. "Should developing countries undervalue their currencies?," Journal of Development Economics, Elsevier, vol. 105(C), pages 140-151.
    11. Cadot, Olivier & Fernandes, Ana & Gourdon, Julien & Mattoo, Aaditya, 2011. "Impact Evaluation of Trade Interventions: Paving the Way," CEPR Discussion Papers 8638, C.E.P.R. Discussion Papers.
    12. Monga, Celestin, 2011. "Cluster-based industrial parks : a practical framework for action," Policy Research Working Paper Series 5900, The World Bank.
    13. Laura Alfaro & Maggie X. Chen, 2012. "Selection and Market Reallocation: Productivity Gains from Multinational Production," Harvard Business School Working Papers 12-111, Harvard Business School, revised Nov 2016.
    14. Ju, Jiandong & Lin, Justin Yifu & Wang, Yong, 2011. "Marshallian externality, industrial upgrading, and industrial policies," Policy Research Working Paper Series 5796, The World Bank.
    15. Michaud, Amanda & Rothert, Jacek, 2014. "Optimal borrowing constraints and growth in a small open economy," Journal of International Economics, Elsevier, vol. 94(2), pages 326-340.
    16. Godart, Olivier N. & Görg, Holger, 2013. "Suppliers of multinationals and the forced linkage effect: Evidence from firm level data," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 393-404.
    17. Marcela Meléndez Arjona & Guillermo Perry, 2009. "Industrial policies in Colombia," WORKING PAPERS SERIES. DOCUMENTOS DE TRABAJO 009138, FEDESARROLLO.
    18. De La Torre,Augusto & Ize,Alain, 2015. "Should Latin America save more to grow faster ?," Policy Research Working Paper Series 7386, The World Bank.
    19. Hallegatte, Stephane & Heal, Geoffrey & Fay, Marianne & Treguer, David, 2011. "From growth to green growth -- a framework," Policy Research Working Paper Series 5872, The World Bank.
    20. Lan, Xiaohuan & Li, Ben, 2011. "Nationalism and international trade: theory and evidence," MPRA Paper 36412, University Library of Munich, Germany, revised 03 Feb 2012.
    21. Contessi, Silvio, 2010. "Multinational Firms' Entry and Productivity: Some Aggregate Implications of Firm-level Heterogeneity," Working Papers 2010-043, Federal Reserve Bank of St. Louis, revised 26 Aug 2015.
    22. repec:bbz:fcpbbr:v:11:y:2014:i:6:p:98-122 is not listed on IDEAS
    23. Laura Alfaro & Anusha Chari, 2009. "India Transformed? Insights from the Firm Level 1988-2005," NBER Working Papers 15448, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Trade; Foreign Investment; Industrial Policy; Developing Countries;

    JEL classification:

    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • F1 - International Economics - - Trade

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