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Trade and investment in the global economy

Anderson, James, Larch, “Trade and investment in the global economy“, VoxEU CEPR Policy Portal, July

Foreign direct investment has traditionally been viewed as a key driver of prosperity, and modern FDI has also become a vehicle for transferring intangible assets. This column uses a counterfactual experiment based on a hypothetical world with no outward or inward FDI to and from low-income and lower-middle-income countries to examine the effects of FDI on trade, domestic investment, and welfare. World welfare falls by about 6% and all countries lose out, with some poorer countries losing over 50%. World trade falls by 7%, with the losses again unevenly distributed.

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