International Trade and Economic Development or Growth

A Qualification

in The Journal of World Investment & Trade
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International Trade and Economic Development or Growth

A Qualification

in The Journal of World Investment & Trade


If Smith's argument is seen in terms of the British economy in the second half of the eighteenth century, it posits that ongoing internal dynamism could be negated by a lack of foreign markets and by impediments to imports of materials not domestically available in the needed quantity. 2 A policy of import substitution usually argues against international involvement; the Kravis/Nurkse hypothesis really concerns differing degrees of openness. 3 Neither Krueger, 1998, nor Greenaway et al., 1998, mention facets of international openness other than trade, but the empirical tests in Greenaway et al., 1998, do identify the ratio of investment/GDP as a statistically- significant positive variable and implicity allow a role for inward foreign direct investment.

4 Including proprietary (and non-proprietary) technology and noncodifiable knowledge. 5 This caveat would apply to any of the four dimensions of Iei. 6 Srinivasan, 2000, emphasizes the distinction between the one-time benefit of a more efficient resource allocation and the longer-run benefit of more efficient overall performance; both involve an upward shift in the log GtW /time relationship but the latter gives a steepening of the line of best fit as well. Greenaway et al., 1998, identify a J-curve or lag effect. 7 Identification of the quality of the institutional set echoes the early emphasis of the structural and cultural changes as a requisite part of the development process. For an empirical study of the influence of Mt·7F affiliates on the sophistication of exports by developing countries, see Dunning et al., 2001. 8 Note that primary product exports (including specialist crops) require less general sophistication on the part of the developing exporter. Some inward FDI to exploit natural resources may exist, but these operations can usually be tailored to bypass shortcomings in the general quality of the host country's institutional set.

9 The greater dimensionality of IEI opens up the possibility of a much wider range of economic policy measures to influence the degree of "openness"; see Gray, 1999, Chapter 8.

» This is "traditional" foreign portfolio investment; for an identification of "modern portfolio investment" involving foreign acquisition of equities in emerging stock markets, see Dilyard and Gray, 2000. 11 Inward Fm may depend upon investment incentives in the early stages of economic development, but the design of an efficient set of incentives for a specific investment can require a high degree of skill. Foreign direct investment docs have the advantage that it can be located in enclaves in which the quality of the socio-economic and physical infrastructures are raised to attract inward FW ; the creation of "special economic zones" in China is a successful example of such policies; see He and Gray, 2001. 12 For a discussion of Japanese reliance on and success with licensing foreign proprietary technology, see Ozawa, 1996. A successful development policy of licensing proprietary technology will require a substantial stock of human capital and an ability to generate knowledge-assets that does not sit well with the typical concept of a lower middle-income or poor developing country. �3 Net outward factor flows can reduce rates of economic growth in the home country.

14 The partial hypothesis that inward FDI, which is export-oriented, will generate growth might be verified by an in-depth study of different regions (states) in Mexico. IS One could view improvement in the quality of the socio-economic infrastructure as similar to the benefits that derive from increased x-efficiency in firms exposed to competition from abroad.

16 One of the strategies for success of the Japanese post-war miracle was the imposition of discriminating and heavy excise taxes on luxury consumer-goods imports and a deliberate policy of reaching out for foreign technology and the acquisition of foreign financial assets so that the value of the yen would not appreciate as a result of the current surpluses. " The rate of growth in some monoculture or monoresource countries will depend largely on the world price of the major export and the uses to which any rents are put. Such growth will be independent of changes in the degree of trade liberalization at home and, since primary product exports are rarely impeded, abroad. 18 For a definition of non-competitive imports, see Gray, 1976, pp. 45-48. �9 This implies mark-up pricing; see Gray, 1999, pp. 45-46.

20 Disregard of differences in the quality of the socio-economic infrastructure among industrialized countries may qualify the accuracy of some analyses, but the issue has much greater implications for developing economies. 21 Winkelmann, 1998, pp. 369-370, emphasizes the absence in transition economies of financial markets of sufficient sophistication to allocate resources to their "most efficient use" over time.

=z In a country with surplus unskilled population, this may not seem to be a great benefit, but the better technology will contribute to the marketability of the country's goods in foreign markets. 23 The results are recognized as requiring qualification because of the questionable reliability of the underlying data.

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