To what extent do you think the benefits of trade liberalization are contingent on the economies of developing countries moving up the value chain into more complex products in terms of what they’re exporting? Is there a non-trivial possibility that trade liberalization deepens existing resource curses (i.e., exporting but not processing raw materials) or is it far more likely that trade liberalization increases economic complexity?
And thank you for speaking to the DC EA group, I enjoyed your talk!
Hi! Thanks so much for coming :)) … I believe that the latter, because it seem like developing nations that are able to attract foreign investment are the ones that grow economically (Baldwin, The Great Convergence). This is despite the deregulation of the market (e.g. lowering worker and environmental standards, protecting IP rights, allowing monopoly, and institutionalizing other measures that benefit foreign investors). First, emerging economies are under no obligation to adhere to international agreements. They can revise these agreements any time, e.g. allowing tech transfer or nationalizing foreign investment. Second, for their public image and because of their Western company standards, large MNCs tend to hire workers formally (however, this may be more prominent for B2C as opposed to B2B companies—B2Bs do not suffer as much public scrutiny, unless entire value chains are scrutinized for sustainability). Relatively to the conditions of informal laborers (e.g. 1⁄2 of a developing nation’s workforce), the formal deregulated employees still enjoy better protection, higher payments, and thus increased ability to escape poverty. Third, based on economic theory, a country that trades less is able to use its resources less effectively. This lowers the nation’s growth. Fourth, with the value-added trade where parts can be imported and re-exported multiple times, lower import tariffs of a nation mean lower input prices for domestic processors. Fifth, the countries which are excluded from GVC trade fall further behind their integrated competitors. This also implies that the infant industry argument for protectionism is no longer valid—industries develop through foreign investment rather than though protection from foreign competition.
Higher growth should enable further diversification of the domestic economy and domestic investments into higher value-added activities.
Yet, even though a nation may grow economically through trade liberalization, it must enact domestic policies (e.g. redistribution) for this growth to be sustainable and inclusive.
Some arguments for sustainable GVC-led growth can be found in:
To what extent do you think the benefits of trade liberalization are contingent on the economies of developing countries moving up the value chain into more complex products in terms of what they’re exporting? Is there a non-trivial possibility that trade liberalization deepens existing resource curses (i.e., exporting but not processing raw materials) or is it far more likely that trade liberalization increases economic complexity?
And thank you for speaking to the DC EA group, I enjoyed your talk!
Hi! Thanks so much for coming :)) … I believe that the latter, because it seem like developing nations that are able to attract foreign investment are the ones that grow economically (Baldwin, The Great Convergence). This is despite the deregulation of the market (e.g. lowering worker and environmental standards, protecting IP rights, allowing monopoly, and institutionalizing other measures that benefit foreign investors). First, emerging economies are under no obligation to adhere to international agreements. They can revise these agreements any time, e.g. allowing tech transfer or nationalizing foreign investment. Second, for their public image and because of their Western company standards, large MNCs tend to hire workers formally (however, this may be more prominent for B2C as opposed to B2B companies—B2Bs do not suffer as much public scrutiny, unless entire value chains are scrutinized for sustainability). Relatively to the conditions of informal laborers (e.g. 1⁄2 of a developing nation’s workforce), the formal deregulated employees still enjoy better protection, higher payments, and thus increased ability to escape poverty. Third, based on economic theory, a country that trades less is able to use its resources less effectively. This lowers the nation’s growth. Fourth, with the value-added trade where parts can be imported and re-exported multiple times, lower import tariffs of a nation mean lower input prices for domestic processors. Fifth, the countries which are excluded from GVC trade fall further behind their integrated competitors. This also implies that the infant industry argument for protectionism is no longer valid—industries develop through foreign investment rather than though protection from foreign competition.
Higher growth should enable further diversification of the domestic economy and domestic investments into higher value-added activities.
Yet, even though a nation may grow economically through trade liberalization, it must enact domestic policies (e.g. redistribution) for this growth to be sustainable and inclusive.
Some arguments for sustainable GVC-led growth can be found in:
Taglioni, Daria, and Deborah Winkler. Making Global Value Chains Work for Development. International Bank for Reconstruction and Development / The World Bank, 2016. https://openknowledge.worldbank.org/handle/10986/24426?locale-attribute=en