Fdi & Fpi
Fdi & Fpi
Fdi & Fpi
TABLE OF CONTENTS INTRODUCTION ................................................................................................................................................................................... 2 WHAT ARE THE DIFFERENT KINDS OF FOREIGN INVESTMENT? ............................................................................................................ 3 DIFFERENCES BETWEEN PORTFOLIO AND DIRECT INVESTMENT ........................................................................................................... 5 WHY DO COMPANIES INVEST OVERSEAS? ............................................................................................................................................ 6 CONCERNS ABOUT SHIFTING PRODUCTION DUE TO FOREIGN INVESTMENT.......................................................................................... 6 WHY HAS FOREIGN INVESTMENT INCREASED SO DRAMATICALLY IN RECENT DECADES? ................................................................... 7 WHERE DOES FOREIGN INVESTMENT TAKE PLACE? ............................................................................................................................. 8 FACTORS INFLUENCING FOREIGN INVESTMENT DECISIONS .......................................................................................... 10 EFFORTS TO INCREASE INTERNATIONAL INVESTMENT ........................................................................................................................ 11 MEASURES TO INCREASE INTERNATIONAL INVESTMENT..................................................................................................................... 12 TRIMS ................................................................................................................................................................................................ 12 NAFTA CHAPTER 11 .......................................................................................................................................................................... 13 THE MAI ............................................................................................................................................................................................. 14 POSITIVE EFFECTS OF FOREIGN INVESTMENT ..................................................................................................................... 15 CAPITAL INFLOWS ............................................................................................................................................................................... 15 EMPLOYMENT ..................................................................................................................................................................................... 17 PRODUCTION ADVANTAGES ................................................................................................................................................................ 17 CONCERNS ABOUT FOREIGN INVESTMENT ............................................................................................................................ 19 FINANCIAL VOLATILITY ...................................................................................................................................................................... 19 CONTAGION ........................................................................................................................................................................................ 21 PROBLEMS WITH CAPITAL INFLOWS .................................................................................................................................................... 22 INVESTMENT AND LABOR .................................................................................................................................................................... 23 EXPORT PROCESSING ZONES ............................................................................................................................................................... 23 GLOBALIZATION MAY INCREASE INEQUALITY .................................................................................................................................... 24 ENVIRONMENTAL CONCERNS .............................................................................................................................................................. 24 CONCLUSION ...................................................................................................................................................................................... 25 THE NET BENEFITS OF GLOBAL INVESTMENT ..................................................................................................................................... 25 INVESTMENT AND TRADE .................................................................................................................................................................... 25 THE ROLE OF GOVERNMENT ............................................................................................................................................................... 26 LEARNING MORE................................................................................................................................................................................. 27 GLOSSARY ........................................................................................................................................................................................... 28 SELECT BIBLIOGRAPHY ................................................................................................................................................................. 30
Introduction
When people think about globalization, they often first think of the increasing volume of trade in goods and services. Trade flows are indeed one of the most visible aspects of globalization. But many analysts argue that international investment is a much more powerful force in propelling the world toward closer economic integration. Investment can alter entire methods of production through transfers of knowledge, technology, and management techniques, and thereby can initiate much more change than the simple trading of goods. Over the past years, foreign investment has grown at a significantly more rapid pace than either international trade or world economic production generally. In fact, foreign direct investment in the United States in 2009 equaled roughly $143 billion (down from its peak $325 billion in 2008).1 The tremendous growth in levels of foreign direct investment is a recent phenomenon and is one of the most powerful effectsand causesof globalization. In 1982, the global total of Foreign Direct Investment (FDI) flows was $57 billion. By the end of 2007, FDI flows reached $1.5 trillion, breaking the record established in 20002nearly 30 times the level 25 years earlier. (Due to the recent global financial and economic crisis, however, FDI flows have decreased to an estimated $1.12 trillion in 2010.)3 But as with many of the other aspects of globalization, foreign investment is raising many new questions about economic, cultural, and political relationships around the world. Flows of investment and the rules which govern or fail to govern it can have profound impacts upon such diverse issues as economic development, environmental protection, labor standards, and economic and political stability. At the same time, focusing entirely inward on domestic production to limit foreign investment and international interaction is largely detrimental to one's economy. For some nations, this has manifested itself in import substitution industrialization (ISI), which refers to an international economic and trade policy based on the belief that a nation should reduce its dependency on foreign investment and goods by domestic production of industrial goods. In Latin and South America, one region where ISI became common through the middle of the 20th century, domestic employment grew and global shocks (such as recessions) did not affect the region as harshly. But the negatives far outweigh the positives: The industries created under ISI became futile and inefficient, and did not create the institutions or infrastructure to maintain ISI. Additionally, countries typically participating in ISI lacked rich enough economies to sustain the system. Had foreign investment played a part, many of these industries might have been able to grow and develop.4 The following Issue Brief will explain the fundamental concepts of cross-border investment, define key terms, and explore the major controversies related to international investment.
Source: Foreign Direct Investment in the U.S.: Balance of Payments and Direct Investment Position Data. US Dept. of Commerce Bureau of Economic Analysis, 2010..
2 3
Source: http://www.economist.com/markets/rankings/displaystory.cfm?story_id=9723875 Source: http://www.economist.com/node/17967018. 4 Source: Baer, Werner. Import Substitution and Industrialization in Latin America: Experiences and Interpretations. Latin American Research Review. Vol. 7 (Spring): 95-122. 1972.
Foreign portfolio investment (FPI), on the other hand, is a category of investment instruments that is more easily traded, may be less permanent, and do not represent a controlling stake in an enterprise. These include investments via equity instruments (stocks) or debt (bonds) of a foreign enterprise that does not necessarily represent a long-term interest. Stocks: dividend payments holder owns a part of a company Bonds: interest payments ownership of bond rights only
While FDI tends to be commonly undertaken by multinational corporations, FPI comes from my diverse sources such as a small company's pension or through mutual funds held by individuals. The returns that an investor acquires on FPI usually take the form of interest payments or non-voting dividends. Investments in FPI that are made for less than one year are distinguished as short-term portfolio flows. FPI flows tend to be more difficult to calculate definitively, because they comprise so many different instruments, and also because reporting is often poor. Estimates on FPI totals generally vary from levels equaling half of FDI totals, to roughly one-third more than FDI totals. The difference between FDI and FPI can sometimes be difficult to discern, given that they may overlap, especially in regard to investment in stock. Ordinarily, the threshold for FDI is ownership of "10 percent or more of the ordinary shares or voting power" of a business entity (IMF Balance of Payments Manual, 1993). Calculating Investment: Calculations of FDI and FPI are typically measured as either a "flow," referring to the amount of investment made in one year, or as "stock," measuring the total accumulated investment at the end of that year.
Until the 1980s, commercial loans from banks were the largest source of foreign investment in developing countries. However, since that time, the levels of lending through commercial loans have remained relatively constant, while the levels of global FDI and FPI have increased dramatically. Over the period 1991-1998, FDI and FPI comprised 90 percent of the total capital flows to developing countries. Over the period of 1996-2006, FDI and FPI outflows from the United States more than doubled.5 Similarly, when viewed against the tremendous and growing volume of FDI and FPI, the funds provided in the past by governments through official development assistance, or lending by commercial banks, the World Bank, or International Monetary Fund (IMF), are diminishing in importance with each passing year. Therefore, when one talks about the recent phenomenon of globalization, one is referring in large part to the effects of FDI and FPI, and these two instruments will therefore be the primary focus of this Issue Brief.
Source: http://www.imf.org/external/pubs/ft/gfsr/2007/02/
6 7
Of course, the fact that such an overwhelming percentage of the sales resulting from U.S. foreign direct investment takes place among developed countries, or that foreign production is overwhelmingly used for consumption local to that country, does not mean that concerns about FDI in developing countries are of no consequence. However, when one thinks about the forces driving globalization and the decisions to invest in overseas production, these figures can help keep matters in perspective. Foreign investment can also raise concerns of a somewhat more nationalistic nature. Foreign investment, particularly when it involves control of prominent sectors of a nation's economy, individual companies, or even landmarks such as buildings, can raise alarms that foreign entities may be taking control of resources that are critical to a nation's identity or even security. This can lead to suspicions that the foreign owners may not have the best interests of the domestic society in mind. These fears about foreign control can be particularly serious in developing countries, although even wealthy, developed countries are not immune to these concerns. In the 1980s, for example, many Americans became worried about foreign investment into the United States. The sale of prominent American landmarks such as Rockefeller Center in New York City to a group of Japanese investors made many Americans believe that they were losing ownership of their own economy. Questions for Discussion: 1. How do you evaluate the benefits or detriments of foreign investment? How much weight do you give to the concern that FPI can lead to economic upheaval? Do you find the argument that foreign investment amounts to "buying" another country? What controls could be put in place to counter this concern? 2. What relationship do you see between FDI and employment? Looking at the United States as an example, have you noticed a shift in the distribution of jobs over the past decade? What jobs are leaving the United States? Where are these jobs going? What jobs are replacing them?
1) Technology. Telecommunications and transportation advances have simply made it easier to do business across large distances. As former American President William Jefferson Clinton once pointed out, in the 1960s, transatlantic telephone lines could only accommodate 80 simultaneous calls between Europe and the United States. Today, satellites and other telecommunications infrastructure can handle one million calls at one time. Fax machines, email and the drop in the cost of air travel have also contributed significantly to the growth of FDI. A business owner might think twice about trying to run an affiliate in a foreign country if communication with that office were not both easy and cheap. Changes in practices tend to be driven by changes in capabilities, and these new methods to communicate have unquestionably helped drive much of the subsequent desire to promote economic integration. The 21st century has brought even greater changes with the development of Bluetooth technology, better satellite reception, and increased flexibility in telecommuting and teleconferencing. 2) The lure of higher profits. In the 1980s and early 1990s, a number of countries in East Asia (Hong Kong, Indonesia, Japan, South Korea, Malaysia, Singapore, Taiwan, and Thailand) began to experience enormous economic growth rates in some cases piling up double-digit expansions in their GDP per capita year after year. These countries had built their phenomenal growth on a foundation based on greater integration into the international economy. In particular, they began emphasizing export-led growth. Investors from around the world realized that access to East Asian markets and their trading partners might help them attain much higher returns on their investments than they could obtain at home. 3) The fall of the Berlin Wall. The end of the Cold War had an important impact on international financial liberalization. First, many developing countries that had previously been committed to socialist models of economic planning began to turn toward market economies. The resulting efforts to privatize state-owned enterprises and changes in economic policies that were more favorable to capital investment made these economies much more attractive to potential investors. In addition, the demise of the Soviet Union also gave many investors much more confidence in the political stability of developing countries in general. Fears that a government might be overthrown or voted out in favor of one that might expropriate foreign assets declined. 4) Financial liberalization. Prior to the 1970s, many countries, including the United States, imposed strict limits on the rights of companies and individuals to invest overseas, to purchase foreign securities, or even to hold foreign currencies. Many of these restrictions were put in place following the Great Depression of the 1930s, which had produced volatile movements of capital, triggering financial panics in some cases. However, in the early 1970s, the United States went off the gold standard and the previous system of fixed exchange rates between foreign currencies was abandoned. In addition, many restrictions were lifted on the flows of international capital, making it much easier for investors to purchase foreign securities. Since that time, the United States has been in the forefront of efforts to remove remaining controls on the movement of international capital. The Reagan and Clinton Administrations in particular made de-regulation of capital movement a high priority on their international economic policy agendas. Financial liberalization has been the most direct, and probably the single biggest, factor accounting for the growth of international investment flows over the past several decades.
In fact, the great majority of global FDI takes place among developed countries. However, as a result of the recent financial crisis, and its greater effect on developed countries, the developing economies have had less of a decline. According to the UNCTAD 2010 World Investment Report, flows to developed economies contracted by 45% in 2009, while they only fell 24% in the developing world. In addition, China has joined the United States and France as the top three recipients. Overall in 2009, developed economies attracted $565 billion of FDI, while developing economies drew $478 billion. Although FDI flows have been increasing at a great rate over the past decade, developing countries in Southern Africa have actually been losing their share of global investment. These countries received a peak of world FDI inflows in 2001. When viewed this way, one might conclude that Sub-Saharan Africa is being left behind by globalization. On the other hand, the FDI inflows for the rest of the developing world have been increasing over the page decade as well, especially China. One of the reasons why foreign investment in developing countries is small is that low labor costs are a factor of diminishing importance to most investors. Certain sectors, especially such as agriculture, textile and apparel, do continue to seek out cheap labor sources, but these sectors comprise an increasingly small fraction of the global production of goods and services. With the service sector becoming more prominent worldwide, labor costs and costs of production are becoming less of an issue for many investors. More international investors seek higher productivity workforces as opposed to low wage ones, and thus look for countries with more skilled workers, despite the higher wages associated with those skills. Nonetheless, these facts do not diminish the importance of foreign investment for the less developed world. According to International Monetary Fund regional statistics, nations in Latin America, the Middle East, and Europe relied mostly on FPI as the source for capital flows, Asia received most of its investment from FDI, and Africa receives most of its capital inflows from development assistance.
The determinants of FPI are somewhat more complex, however. Because portfolio investment earnings are more likely to be tied to the broader macroeconomic indicators of a country, such as overall market capitalization of an economy, they can be more sensitive to factors such as: high national economic growth rates exchange rate stability general macroeconomic stability levels of foreign exchange reserves held by the central bank general health of the foreign banking system liquidity of the stock and bond market interest rates
In addition to these general economic indicators, portfolio investors also look at the economic policy environment as well, and especially at factors such as: the ease of repatriating dividends and capital taxes on capital gains regulation of the stock and bond markets the quality of domestic accounting and disclosure systems the speed and reliability of dispute settlement systems the degree of protection of investor's rights
Questions for Discussion: 1. In what ways do the criteria for investing differ between FDI and FPI? Which countries do you think are more favorable for investment, given these criteria? Do you think these criteria are good indicators for successful investment? 2. What factors would you evaluate if you were an investor? Pretend you wanted to open a manufacturing plant to boost production of your wildly popular technological gizmo. What sorts of criteria would you evaluate in determining where to invest? Now pretend that you were looking for a short-term bond purchase for your company's retirement plan. What factors would influence your decision to invest in this case?
Controversies that may arise from host country policy decisions on these aspects of the investment environment will be covered in the following section of this Issue Brief.
Free transfer of funds: Another practice that has historically been of serious concern to foreign investors is the limitations on the transfers of fundsespecially out of a country. During periods of economic crisis, foreign investors may wish to withdraw their assets, and have often found that foreign governments have imposed rules blocking their ability to do so. The wisdom of government policies restricting capital outflows, particularly of short-term portfolio investments, is still a matter of widespread debate among economists and public officials as well as individual investors, for the liquidity of funds and capital are important issues. Dispute settlement: These provisions typically spell out clear procedures that must be followed in the event of disputes between investors and host governments, to ensure that rules are adhered to and that arbitration may be established by mutual consent. Most Favored Nation treatment: To ensure that nations do not disadvantage foreign investment from certain nations in favor of investment from other ones, this basic concept of international trade agreements-and now the key provision in international agreements on investment-seeks to prevent discrimination among investors from different countries. The phrase "most favored nation" refers to the obligation of the country receiving the investment to give that investment the same treatment as it gives to investments from its "most favored" trading partner. The case for reducing these kinds of barriers to investment is well-grounded in economic facts. Obstacles to investment prevent countries from making optimal use of their own and other countries' resources. Countless billions of dollars of potential wealthfor investors in the form of profits, for workers in the form of wages, and for consumers in the form of lower pricesare lost every year due to barriers to trade and investment. Countries may impose these kinds of measures with the intention of protecting domestic industries from international competition and promoting their economic development, but this usually leads to misallocation of resources away from the natural economic capabilities of nations.
TRIMS
The Uruguay Round negotiations (1994) produced an Agreement on Trade-Related Investment Measures (TRIMs). This agreement cautiously sought to limit the scope of the investment barriers described above. Because the mandate of the GATT and the WTO was to specifically deal with trade-related issues, TRIMS was limited only to investment that affects international trade. Thus, investment in a facility producing solely for the local market would not be covered.
The agreement included provisions to ensure national treatment; to prohibit domestic content provisions; and to discourage export performance requirements (known as "trade balancing requirements"), i.e., that a new investment facility export a certain percentage of its production. It also established a committee to monitor the operation and implementation of the Agreement, providing a forum to explore concerns over these measures more clearly. TRIMS requires WTO member governments to notify the WTO and fellow-members of all investment measures that do not conform with TRIMS. Developed countries were given two years to eliminate these provisions (until 1996); most developing countries were given until 2000; and the least developed countries were given a grace period beyond 2000.
NAFTA Chapter 11
The North American Free Trade Agreement (NAFTA) is a multilateral trade agreement between United States, Mexico, and Canada. NAFTA, which was signed in 1993, also contains provisions on investment, in its Chapter 11. Although Chapter 11 received little attention in 1993, it has emerged as among the most controversial in ensuing years, and served as the basis for some of the strongest criticism of globalization. The provisions were included precisely because of Mexico's questionable history of regulating foreign investment, and these were therefore among the most serious concerns that investors had about entering the Mexican market. Chapter 11 comprised many of the provisions listed above, providing for most-favored nation treatment and prohibitions on export targets, domestic content, or technology transfer requirements. The agreement also established a more formal dispute resolution procedure and contained provisions on expropriation that have turned out to be among the most controversial. As discussed earlier in this Issue Brief, certain regulations can diminish the economic value of an investment. A new environmental rule, for example, which restricts industrial development on a piece of land, might be considered to be a "regulatory taking." In such an instance, the owner of that land might claim to have a right to be compensated for this expropriation of the value of their real estate. Consequently, concerns have been raised by civil society activists that a vast array of laws and regulations, relating to everything from the environment to civil rights, could be endangered by trade agreements. New Kinds of International Economic Disputes The reasons why pressure has built for new agreements beyond the original scope of the GATT may seem confusing, but are actually quite simple. For example, think about a manufacturer of automobiles 40 years ago faced with the sudden imposition of tariff barriers in another country. In confronting this kind of economic discrimination against foreign producers, this manufacturer might have been able to find recourse in the GATT's provisions on tariffs on goods traded internationally. But today, heavily regulated service industries, such as banking, are a growing component of international trade. Several decades ago, banks were generally limited to operating within their home country. However, thanks to globalization (and especially to the telecommunications revolution that has wired the world together), banks are much more willing and able to obtain approvals abroad to expand their operations across borders. Think of a hypothetical bank that is entering a foreign market. After enjoying great initial success, the international bank begins to take so much market share that it is a competitive threat to local banks in the new country. As a result, the foreign government decides to intervene to protect its local banking sector which is less efficient and offers fewer services at more costly rates. The foreign government imposes new regulations that specifically targetor discriminate againstforeign banks. Unlike the automobile manufacturer, who could raise a protest through the GATT procedures, the banker would have had no similar recourse until the WTO covered services and investment. Because a branch office of a bank offers services rather than traded goods, this dispute could not have been addressed within the context of the GATT. To better address a dispute over this kind of economic activity, a new agreement had to be implemented. Disputes of this type formed the basis for the General Agreement on Trade in Services (GATS).
The MAI
The attempt to draft a Multilateral Agreement on Investment (MAl) was one of the most controversial chapters in the era of globalization, and the failure of the effort taught many lessons about the sensitivities of investment issues. As noted earlier, the great majority of foreign direct and portfolio investment originates in developed countries, and is invested in other developed countries. OECD trade ministers recognized that controversies about foreign investment policy occur most frequently in developing countries. Therefore, an initial effort to draft a MAI was initiated by governments of the OECD nations in the hope they might be like-minded and would readily agree on terms for investor protection. However, after several years of discussion, the negotiations ended without a draft agreement. The negotiators found that there was relatively little will within their member countries to address several significant elements of cross-border investment policies such as taxation, for example. Every nation wanted to carve out a list of exceptions to protect domestic industries or domestic regulatory practices. As a result, the draft that emerged, rather than removing barriers to foreign investment, seemed to do little more than preserve the status quo. The foundering of the MAI also demonstrated the new-found power that non-governmental organizations (NGOs) now wield in the era of globalization. More than 600 NGOs from around the worldfrom consumer rights groups such as Public Citizen, to environmental groups such as Friends of the Earth and the Sierra Club, to major American labor unionsjoined the effort to derail the MAI negotiations. Among NGOs, the provisions of the MAI that dealt with expropriation, modeled on those that appeared in NAFTA's Chapter 11, were the most controversial. Critics believed that the MAI would restrict government ability to curb the participation of foreign corporations in critical areas, and any bans on specific investment procedures preexistent would not be able to function under the MAI. Additionally, foreign corporations might take precedent over than domestic companies in terms of international investment. Some critics, such as Mark Vallianatos of Friends of the Earth, argue that accountability and appropriate responsibilities in exchange for rights should be arranged and made clear.8 The effective opposition of NGOs underscored the new reality that negotiations on agreements on international trade and investment will benefit from input from citizen groups, many of which are transnational themselves.
Questions for Discussion: 1. What role have NGOs played in the development and enforcement of investment? What sources of leverage can you think of that make them influential in decisions concerning international trade?
2. What are the ramifications of these multilateral attempts to facilitate investment? How do they affect the host and
target countries differently?
Source: http://www.fpif.org/briefs/vol2/v2n39mai.html
Capital Inflows
A positive side effect of helping entrepreneurs get started is the creation of jobs, which leads to increased income levels and thereby to increased consumer demand. Such demand in turn triggers opportunities for other enterprises and, through this multiplier effect, the capital that comes with foreign investment often helps produce economic growth. This pattern also applies in developed countries. The world's largest recipient of foreign investment is the United States. Over the past several decades, the hundreds of billions of dollars of foreign capital that has been invested in the United States has been of tremendous benefit to the U.S. economy, strengthening the dollar, and helping to bring down interest rates by increasing the supply of capital for loans to business and individuals. As a result of foreign investment, the US economy is no longer a domestic economy in the traditional sense. According to United Nations Conference on Trade and Development, in 2006 the total stock of U.S. investment from domestic capital sources was 13.5 percent of total annual gross domestic product (GDP) and the balance of existing investment in the United States was financed from foreign sources. In 2007, there was US$175 billion of FDI in the U.S, and an 88% increase in FDI inflows to North America as a whole (to $244 billion)9. As of June 2009, there are over 9 trillion dollars worth of foreign FPI in the U.S. 10 This shows that even the U.S. economy is heavily reliant on foreign capital inflows, which have led to the establishment of new industries as well as job creation in the United States.
The figures below show the source regions and target sectors of direct investment from other parts of the world to the United States as of 2009.11
9 10 11
Source: United Nations Conference on Trade and Development, World Investment Report 2007 Source: http://treas.gov/tic/shlhistdat.html Source http://www.bea.gov/international/di1fdibal.htm
Employment
Stated very simply, when a company builds a factory in a foreign country, it generally creates new jobs. Foreign investment in the United States contributes significantly to domestic employment. According to the Bureau of Economic Analysis, in 2007, roughly 4.7 percent of the U.S. labor force was employed by foreign-owned enterprises12. (Note: Because most foreign investment into the United States is portfolio investment, rather than direct, as discussed above, one might assume that foreign investment would account for more than 4.7 percent of the jobs in the United States. Portfolio investment undoubtedly accounts for a large number of jobs in the U.S., but is harder to quantify because it often involves ownership of a portion of a company, making the numbers harder to disaggregate.) Opponents of globalization often express concerns about jobs lost in the domestic economy when a factory moves abroad, and about downward pressure on wages at home due to the availability of cheaper labor abroad. Job losses can mean that displaced domestic workers, though unlikely to remain unemployed permanently, may be forced to take lowerpaying jobs. But any downward pressure on wages in general (for those in trade and non-trade related industries) may be offset by lower prices for domestic consumers as a whole due to the movement of the factory. Consider the following process: a company moves its factory to a less developed country to take advantage of lower labor costs and increase its profits. The poorer country may be said to have a comparative advantage in the production of low-skill, labor-intensive goods, such as textiles and apparel. Other companies follow to gain the benefits of lower costs of labor, and are likely to cut their prices to compete with the company already established in the poor country. As competition increases, consumers in the home market as well as those in the poor market will benefit from lower prices, while the less developed country has all the benefits of new know-how, jobs, and related consumer demand. Globalization has raised numerous issues of concern about labor markets. Foreign investment, trade, technology, and immigration, to name a few issues, are all disruptive to traditional means of productions. While most economists believe that the changes brought about by these factors tend to work to promote economic efficiency, and have great potential to improve the living standards of people all over the world, a host of concerns remain. Numerous proposals have been put forth to help mitigate the disruptions caused by globalization. Bringing down the prices of goods and services has the same effect as giving a pay raise to every worker who has access to these cheaper goods: their paycheck can now buy more.
Production Advantages
Increased outward orientation: Foreign based affiliates tend to be more outward oriented. As multi-nationally based operations themselves, they are often more aware of the opportunities of foreign markets and therefore more likely to seek to export. This also helps improve a nation's balance of payments. In the case of the United States, foreign investors account for roughly one-quarter of all U.S. exports (Schott, 179). In turn, this outward orientation often helps domestic firms become more aware of international opportunities. Technology transfers: When companies build plants in foreign countries, they tend to bring the same production techniques and technologies with them that they use in domestic production. This helps raise the skill level of the workers employed in the new plants. The economist Raymond Vernon has observed that direct investment possesses a "life cycle," starting with innovation in a firm's home market, successful application of that new knowledge or technology, and ending with the replication of that innovation in foreign affiliates. Productivity spillovers: Productivity spillovers can spur growth and raise productivity in industrialized countries as well as developing economies. For example, "just in time" manufacturing allows firms to minimize their needs for inventory by receiving necessary inputs immediately before they are needed. This reduces the need for warehousing and inventory costs. This manufacturing innovation was brought to the United States from Japanese firms. It was adopted by many domestic firms and helped improve the productivity of many American businesses.
12
http://www.census.gov/compendia/statab/2011/tables/11s1292.pdf
Improved production processes: Companies can enjoy significant improvements in productivity from economies of scale, which can be augmented by participating in global operations. Foreign investment need not mean duplicating production and distribution networks in new markets. Rather, foreign investment can make production more efficient by purchasing elements of a final product in the country with a comparative advantage in making that product. Globalization has produced an integration of production and marketing of goods across national borders. Increased competitiveness in domestic industry: Competition from foreign corporations often encourages domestic companies to become more efficient and globally competitive. These improvements can result from the effect known as "backward linkages." Backward linkages are the long-term relationships that develop between a foreign investor and other firms in the host country. For example, when a firm decides to build a plant that assembles electrical appliances in a foreign country, the firm not only provides a certain number of people with new jobs, but the location of the plant is also likely to encourage the development of new local industries that can supply it with electric motors, fans, and other parts for its production.
13
Galbraith, James K. and Travis Hale. Income Distribution and the Information Technology Bubble. University of Texas Inequality Project. Working Paper 27. 14 January 2007. 14 http://www.federalreserve.gov/releases/h15/data/Annual/H15_FF_O.txt 15 Sachs, Jeffrey. Crowded Wealth: Economics for a Crowded Planet. 4 March 2009. 16 Sachs, Jeffrey. Crowded Wealth: Economics for a Crowded Planet. 4 March 2009. 17 Fratianni, Michele and Francesco Marchionne. The Role of Banks in the Subprime Financial Crisis: 1. 10 April 2009. 18 Cho, David; Appelbaum, Binyamin. Unfolding Worldwide Turmoil Could Reverse Years of Prosperity. The Washington Post 7 October 2008: A01. 19 Global FDI in Decline Due to the Financial Crisis, and a Further Drop Expected. UNCTAD Investment Brief 2009: 2. 20 Assessing the impact of the current financial and economic crisis on global FDI flows. 3. UNCTAD. 19 January 2009. 21 Global FDI in Decline Due to the Financial Crisis, and a Further Drop Expected. UNCTAD Investment Brief 2009: 2. 22 http://www.imf.org/external/pubs/ft/weo/2009/update/01/index.htm
Developed economies are experiencing more of a decline in foreign direct investment than transition or developing economies (see table below). This is because the crisis originated in, and therefore more directly affects, the developed world.23 Developing and transition economies are seeing a slowdown in FDI inflow growth, although growth rates will still remain positive (see table below). Europe, Japan and West Asia will suffer the greatest decline in FDI, with the US experiencing a decline as well (see table below).
23
Assessing the impact of the current financial and economic crisis on global FDI flows.: 5. UNCTAD. 19 January 2009.
Due to declining profits and increasingly difficult access to credit, as well as bad short-term economic growth prospects, transnational companies are cutting down on foreign direct investment. However, the situation could improve in the future as financial and economic crises provide opportunities for firms to purchase foreign assets at relatively low prices. Firms also seem to be committed to longer-term investments in foreign nations; although FDI flows have decreased, FDI stocks have not.24 Firms from emerging economies and countries well-endowed with natural resources are becoming a growing source of FDI,25 too. Lastly, specific industries might be well-suited for escaping from the crisis. According to UNCTAD, these include industries in life sciences, agro-food, transport equipment, business services, personal services, information and communication technologies and energy, chemistry and environmental conservation.26
Contagion
The phenomenon known as "contagion" is closely related to the concern about volatility. Put simply, when investors decide to flee one market, the "herd effect" of investors following each other can produce economic crises in other countries that previously appeared to be fundamentally sound. During the East Asian financial crisis, the global contagion effect was driven significantly by the use of financial derivatives. These are financial instruments which typically involve calculations and risk-taking about the price of one good or economic entity against another. Investments in such instruments are often highly leveraged, that is, purchased with only a small percentage of the purchase cost coming from the buyer and the rest coming from lenders to the buyer. Consequently, when one basket of goods fails to perform the way investors expected, the investors may be forced to sell off other assets to cover the risks they have taken. In 1997-98, when Asian economies started collapsing, many investors were forced to sell off assets held in Russia, which led to a decline in stock prices there and a weakening of their currency. The downturn in Russia helped set off a similar downturn in Brazil. In fact, analysts of the East Asian financial crisis found it instructive to look at the difference in the impact discernable in two nations that were long considered economic "twins" of East Asia-South Korea and Taiwanbecause their development had followed such similar paths. Although South Korea suffered a real catastrophe, with its currency losing
24 25 26
Assessing the impact of the current financial and economic crisis on global FDI flows.: 14. UNCTAD. 19 January 2009. Assessing the impact of the current financial and economic crisis on global FDI flows.: 14. UNCTAD. 19 January 2009. Assessing the impact of the current financial and economic crisis on global FDI flows.: 15. UNCTAD. 19 January 2009.
80 percent of its value and its stock market losing 42 percent, Taiwan emerged from the region-wide crisis relatively unscathed. A principal difference between their economic profiles was South Korea's much greater reliance on foreign investment, especially on portfolio investment. While Taiwan's reliance on foreign investment over the previous four decades amounted to less than 10 percent of total investment, in South Korea foreign investment accounted for 60 percent of the total. Similarly, the debt/equity ratio in the critical manufacturing sector in Taiwan was 87 percent, but in South Korea the ratio was 300 percent. The handling of the crisis by the International Monetary Fund (IMF) was also the subject of considerable criticism. Prominent economists such as Nobel Prize-winner James Tobin argue that, when facing currency crises that endanger "both financial systems and whole economies, [the IMF and leaders of the financial community]...invariably give priority to finance." Under intense pressure by investors and international institutions to maintain the value of their currency, South Korea, Thailand, Taiwan, and their neighbors' economies were forced to raise interests rates to levels which strangled large numbers of small businesses and necessitated their taking out large loans from the IMF in vain efforts to protect their currencies. The global financial and economic crisis of 2007-2009 could correlate with a global contagion. Whereas previous contagions were geographically limited, the high level of global economic integration at present means that any contagion related to the current financial crisis could engulf the world, reaching all sectors and all nations.27
Financial crisis goes global. The New York Times. 19 September 2008.
employment by U.S-owned multinationals, and more than 75 percent of the sales and assets of overseas affiliates or subsidiaries. Investment is most attracted to countries that have an overall favorable environment for capital. Labor conditions and wages are just parts of a larger equation. Other factors include the skill level of the work force, access to markets through transportation infrastructure, tax policies, overall political and economic stability, and the prevalence of corruption. When asking whether it is beneficial to locate production in developing countries for those sectors that do specifically seek low wage labor, one should also consider the effect that this new production will have on the recipient country labor market. Before workforces can be organized to demand better protection, there must first be a workforce. Although incidents of sweatshop labor have not been uncommon and are very disturbing, there is also evidence that international investment in labor-intensive industries, in the long term, tends to raise wages and strengthen the bargaining power of local workers.
Environmental Concerns
Some analysts are concerned that the environmental cost of globalization is extremely high. It is believed that the global corporations depend upon never-ending resource supplies, ever-expanding markets and constant supplies of cheap labor. Critics say these goals have been given priority over preservation of nature and public health. The world, they say, is on the brink of an environmental collapse and the current levels of global production are unsustainable. Another pertinent issue is that many advanced nations are able to circumvent environment laws in their countries by setting up production facilities in countries that do not have stringent environmental rules. This phenomenon has been termed as a "race to the bottom" in environmental standards as countries fight to attract more foreign capital and keep domestic investment at home. As described earlier, provisions in certain investment agreements such as NAFTA's Chapter 11 that deal with expropriation or "regulatory takings" are also of great concern to environmentalists, because they can threaten environmental regulations.
Conclusion
The Net Benefits of Global Investment
As you can see, international investment, like many aspects of globalization, presents opportunities as well as challenges. You may wonder where the balance of costs and benefits lies. The question is particularly acute for developing countries: many of the greatest controversies about financial liberalization covered in this issue brief are raised when investment flows from developed to developing countries. To be sure, many of the problems of developing countries stem from internal deficiencies, ranging from the inadequate supervision of the banking sector to corruption or inadequate labor and environmental standards. On the one hand, very few economistseven among the harshest critics of financial liberalizationdispute that international investment can be a powerful engine for economic growth. A look at development statistics shows that there is a correlation between investment and growth in developing countries. Proponents of liberalization such as David Dollar of the World Bank point out that essentially no developing country has managed to achieve rapid and sustained growth, successfully raising the prosperity levels of their population, without increasing their openness to foreign investment (Blustein, 2001). But critics question the extent to which these success stories can be attributed to foreign investment alone. They tend to argue that what is most important for a developing country is that it supports an environment that is generally supportive of investment. That is, when the climate is favorable for domestic investment, it is likely to be favorable for international investment. Economists from this school of thoughtwhile not denying the importance of international investmenttend to promote policy prescriptions that are more focused on internal concerns. For example, when asking whether a developing country with a limited government budget should spend funds improving infrastructure at an EPZ to help attract foreign investors, or spend that money on local and national courts, police, and prosecutors to improve the management of their justice system to eventually help control corruption, they would argue for the latter. Their reading of the data posits that investment tends to follow growth, not lead it. Other economists have suggested that, when disaggregating the data on growth and investment in developing countries, many of the supposed problems associated with foreign investment flows can be attributed to certain kinds of restrictions on investment. According to Theodore Moran: "Foreign direct investment is most likely to be harmfulactually damagingto the growth and welfare of developing countries and the economies-in-transition when the investor is sheltered from competition in the domestic market and burdened with high domestic content, mandatory joint ventures and technology-sharing requirements" (Moran, 1999). If this is the case, then it would appear that the most damaging scenario for developing countries would be in receiving foreign investment in the absence of strong agreements like TRIMs, the MAI, or NAFTA's Chapter 11. Other economists have stressed that there can be big differences in the effects on development according to the types of economic activities in which foreign investment is involved. In particular, many analysts have suggested that investment in the extraction of natural resources can have deleterious effects on a nation's development and environment, but investment in more labor-intensive manufacturing is more likely to be beneficial.
In this way, foreign investment can be seen as both a complement and a substitute for trade. A company that wishes to sell its goods and services in a foreign market may often ask whether its goals are best achieved by manufacturing in its home country and exporting its products, or by relocating production to the foreign market. A company's decision on which method to pursue in reaching foreign markets, via trade or investment, may well be determined by the comparison of trade barriers with the investment environment. Questions for Discussion: Students of globalization may ask many questions about the relationship between these activities. Is it better for your economy to produce goods at home, or is it preferable to move production overseas so that consumers may pay lower prices? What is the effect on developing countries of these shifts in production? Is it better for to create jobs in these areas? How should concerns about labor and environmental standards be taken into account?
As you can see from this list of policy options, people from almost the entire spectrum of beliefs about globalization have prescriptions for government policy, even those who advise that governments need only act to remove market-distorting tariff and regulatory barriers. And this list is by no means comprehensive.
Ongoing events are leading an increasing number of analysts of globalization to suggest that we explore the challenges and opportunities of globalization more fully, to better understand its consequences and learn how to maximize its potential benefits while mitigating its disruptions. Economic events such as the East Asian financial crisis and more recent incidents such as the collapse of the Argentinean economy in late 2001 have made many economists argue for improved market mechanisms, such as regulatory measures and oversight. The fact that different countries encountering similar problems have received different prescriptions from the international community has also led many to argue for a more firmly established set of ground rules. Coordination between governments will be crucial for dealing with the global financial and economic crisis of 2007-2009. According to UNCTAD, the challenge is to restore the credibility and stability of the international and financial system, to provide stimulus to economic growth in order to prevent the risk of a spiraling depression, to renew a pragmatic commitment to an open economy, potentially put at risk by rising protectionist tensions, and to encourage investment and innovation.28 In addition, political events such as the large protests in 1999 at the Seattle WTO meeting or in 2001 at the G8 meeting in Genoa, Italy, have led some political leaders to conclude that certain kinds of market interventions or regulations are necessary to assist those who are endangered by globalization, simply to sustain political support for continued liberalization. Joseph Stiglitz, formerly chief economist of the World Bank and Nobel Prize winner for economics in 2001, has characterized the globalization of international finance as suffering from "global governance without global government." He notes that the nationalization of the U.S. economy, which began 150 years ago and was analogous in many ways to the process of globalization, was accompanied by a significant expansion in government oversight and regulation, to help temper crises and provide accountability. One surefire prediction about the globalization debate is that much of the discussion will continue to revolve around appropriate government policies.
Learning More
In many ways, participants in the debate over globalization can be divided into three general camps: 1) Supporters: those who are the staunchest advocates of globalization, believing that markets, not governments, tend to best promote economic development and human society; 2) Reformers: those who support globalization with reservations, believing that markets should be promoted and international barriers to trade and investment should be reduced, but that government regulation can help mitigate some of the harsher aspects of the new changes; 3) Opponents: the most severe critics of globalization, who believe that global economic and political integration corrodes many human values, and who support efforts to promote an economic system that emphasizes local production. To learn more about this fascinating and ongoing debate, students may wish to read more of the writings of economists such as David Dollar, Anne Krueger, and Jagdish Baghwati, on the pro-globalization side. For critiques of the current system that accept many of the basic principles of free markets, authors such as Amartya Sen, Joseph Stiglitz, William Greider and Dani Rodrik have written some of the most prominent works. And for the analysts of globalization who are the most critical and want to stop or reverse the process, students may turn to Gerry Mander, Lori Wallach, or organizations such as Global Exchange. The bibliography of this Issue Brief includes specific works by these authors.
28
Assessing the impact of the current financial and economic crisis on global FDI flows.: 18. UNCTAD. 19 January 2009.
Glossary
Balance of payments (BOP): BOP is a statistical statement that summarizes, for a specific period (typically a year or quarter), the economic transactions of an economy with the rest of the world. It covers: All the goods, services, factor income and current transfers an economy receives from or provides to the rest of the world Capital transfers and changes in an economy's external financial claims and liabilities Bond: A certificate issued by a government or company representing a promise by the bond issuer to pay the bondholder interest in addition to the principal amount of the bond after a specified period of time. For example, a 10-year bond purchased today costs $35. When you redeem or cash in the bond after ten years, the issuer repays the $35 principal plus interest at a rate established when the bond was issued. Debt/equity ratio: The debt/equity ratio measures the extent to which a firm's capital is provided by lenders (through debt instruments such as fixed-return bonds) or owners (through variable-return stocks). A greater reliance on financing through debt can mean greater profitability for shareholders, but also greater risk in the event things go sour. Domestic content requirements: These require foreign investors to purchase a certain percentage of intermediate goods from the host country. Economies of scale: Produces are often able to enjoy considerable production cost savings by buying inputs in bulk, mass-producing or retailing their end product. These lower costs achieved through expanded production are called economies of scale. Exchange rate of a nations currency: Currency like other commodities, rises or falls in "price" with demand. When investors leave, they sell their holdings in a country's currency and as demand falls, the "price" of that currency will also fall. This price change of currency is what the exchange rate refers to. Export processing zones (EPZs): EPZs are special arrangements, often a distinct geographic area near a port, which are set up to promote export industries. Foreign direct investment (FDI): This category refers to international investment in which the investor obtains a lasting interest in an enterprise in another country. Most concretely, it may take the form of buying or constructing a factory in a foreign country or adding improvements to such a facility, in the form of property, plants or equipment. Foreign portfolio investment (FPI): FPI is a category of investment instruments that are more easily traded, may be less permanent, and do not represent a controlling stake in an enterprise. These include investments via equity instruments (stocks) or debt (bonds) of a foreign enterprise that does not necessarily represent a long-term interest. Gold standard: When a country is said to be on the gold standard, the value of its currency and the quantity of its currency in circulation is tied the nation's reserve of gold. Such a system tends to restrict the country's monetary supply. Import Substitution Industrialization: An international economic and trade policy based on the belief that a nation should reduce its dependency on foreign investment and goods by domestic production of industrial goods International Monetary Fund (IMF): The IMF is an international organization of 185 member countries, established in 1947 to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment. Interest rates: Interest rates have a powerful effect on the volume of a nation's money supply. By raising interest rates, i.e., making the cost of borrowing money more expensive, governments or banks can decrease the money supply. A decrease in the money supply tends to be counter-inflationary, which makes a currency more valuable compared to other currencies.
Moral hazard: Critics of the IMF often assert that the knowledge that bad economic decisions, e.g., imprudent bank loans, are often bailed out by the IMF is likely to make lenders and investors less cautious, and only increase the number of economic crises. The "moral hazard" is that economic actors will not have to face the consequences of their own actions. Most Favored Nation: The phrase "most favored nation" refers to the obligation of the country receiving the investment to give that investment the same treatment as it gives to investments from its "most favored" trading partner. National treatment: This has been a core element of most agreements on trade in goods and services, and is also a critical issue pertaining to international investment. Typically, these provisions ensure that foreign investors and their subsidiary companies are "treated at least as well as their domestic counterparts," or "no less favorably" than domestic industries. Organization for Economic Cooperation and Development (OECD): OECD is a descendant of the U.S.-European cooperation required to execute the Marshall Plan and rebuild Europe after World War II. A tribute to the success of that effort is the fact that the 30 or so members of the OECD now include Japan and Korea as well, are thought of as the wealthy nations of the world. Stock: A certificate issued by a corporation that represents partial ownership of the corporation (equity). Different kinds of stock confer different rights and responsibilities on the stockholder, including the right to receive dividends and the ability to participate in corporate decision-making. Subprime credit: General term for borrowings of low-quality debtsuch as mortgages, loans, et. almade to people with less-than-perfect credit or short credit histories. Subprime credit includes the original borrowing itself, as well as any derivative products such as securitizations that are based on subprime loans and then sold to investors in the secondary markets.
Select Bibliography
Introduction Bureau of Economic Analysis, International Investment Data, Foreign Direct Investment in the United States: Capital Inflows, 2000 (www.bea.doc.gov/bea/di/fdi21web.htm); U.S. Direct Investment Abroad: Capital Outflows, 2000 (www.bea.doc.gov/bea/di/usdiacap.htm); U.S. Direct Investment Abroad: Equity Capital, 1999 (www.bea.doc/gov/bea/di/diaeqty_99.htm). Eichengreen, Barry, and Fishlow, Albert. "Contending with Capital Flows: What Is Different About the 1990s?" in Capital Flows and Financial Crises, ed. Miles Kahler (1998), 23. Hanson, Gordon H. "Should Countries Promote Foreign Direct Investment?" United Nations Conference on Trade and Development. G-24 Discussion Paper Series, no. 9, New York and Geneva, February 2001. Kogut, Bruce. "International Business: The New Bottom Line; The Frontiers of Knowledge." Carnegie Endowment for International Peace, Foreign Policy, March 22, 1998. Olson, Mark W. "Globalization Raises a World of Questions." The American Banker, July 19, 1989. Sutherland, Peter D. "Managing the International Economy in an Age of Globalization." The 1998 Lecture, The Per Jacobsson Foundation. October 4, 1998.
Factors Influencing Foreign Investment Decisions Dam. Kenneth W. The New Rules of the Global Game: A New Look at US International Economic Policymaking. Chicago and London: The University of Chicago Press, 2001. Jackson, James K. "Foreign Investment Issues in the WTO." Congressional Research Service (CRS) Issue Brief for Congress, January 27, 2000. Ranney, David C. "Investment Liberalization Agenda." Foreign Policy In Focus, vol.3, no. 21, July 1998, http://www.fpif.org/briefs/vol3/v3n21trad.html. "Trade-Related Investment Measures and Economic Development." Interview with Assistant USTR Wendy Cutler, April 16, 1997. Trade Related Investment Measures. www.meti.go.jp/english/report/data/gCT9908e.html. United Nations Conference on Trade and Development. "Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI): Characteristics, Similarities, Complementarities and Differences, Policy Implications and Development Impact." Geneva, 28-30 June, 1999. Positive Effects of Foreign Investment Bergsman, Joel, and Xiaofang, Shen. "Foreign Direct Investment in Developing Countries: Progress and Problems." Finance & Development, vol.31, no.4, December, 1995. Mishra, Deepa Mody, Ashoka, and Murshid, Antu Panini. "Private Capital Flows and Growth; Contributes to Productivity Growth and Increased Investment." Finance & Development, June 1, 2001, no. 2, vol. 38. Soubbotina, Tatyana P., and Sheram, Katherine. Beyond Economic Growth: Meeting the Challenges of Global Development (Chapter 13). World Bank. October 2000.
Concerns About Foreign Investment Bhagwati, Jagdish and Meyer, Anrdre. "Coping with Antiglobalization: A Trilogy of Discontents." Foreign Affairs, January/February, 2002. Blustein, Paul. "Cause, Effect and the Wealth of Nations," The Washington Post, November 4, 2001, sec. H, p. 1. "Comprehensive Study of the Interrelationship Between Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI)," Paper presented at the United Nations Conference on Trade and Development, June 23, 1999. Dicken, Peter. Global Shift: Transforming the World Economy. London, UK: The Guilford Press, 1998). Edward M. Graham. Fighting the Wrong Enemy: Antiglobal Activists and Multinational Enterprises Washington, DC: Institute for International Economics, 2000. Griffith-Jones, Stephany. "Regulatory Challenges For Source Countries of Surges in Capital Flows. (Chapter I)." South Centre Paper, Geneva, Switzerland, 1997, www.southcentre.org/papers/finance/jones/fondad-03.htm. International Institute for Sustainable Development. Private Rights, Public Problems: A Guide to NAFTA's Controversial Chapter on Investor Rights, Canada, International Institute for Sustainable Development, 2001. Ito, Taktoshi and Krueger, Anne O, eds. Foreign Direct Investment in East Asian Economic Development. University of Chicago Press, 2000. Kindleberger, Charles P. Manias, Panics and Crashes, 3rd ed. (1996), 114-21. Kristof, Nicholas D., and Sanger, David E. "How U.S. Wooed Asia to Let Cash Flow In." The New York Times, February 16, 1999, sec. A, p. 1. Moran, Theodore. "Foreign Direct Investment and Development: A Reassessment of the Evidence and Policy Implications." OECD Conference on the Role of International Investment in Development, Corporate Responsibilities and the OECD Guidelines for Multinational Enterprises, Paris, 20-21 September 1999. Moran, Theodore H. Investment Issue, in The WTO After Seattle, Edited by Jeffrey J. Schott (Washington, DC: Institute for International Economics, 2000), pp. 223. Poast, Paul Daniel. "Unsustainable Political Costs of Fixed Currency Regimes." Financial Times (London), December 28, 2001. Redman, Christopher. "The French Paradox." Fortune International, December 10, 2001. Rodrik, Dani. Has Globalization Gone Too Far? Washington, DC: Institute for International Economics, 1997. Rodrik, Dani. The New Global Economy and Developing Countries: Making Openness Work Washington, DC: Johns Hopkins University Press, 1999. Sen, Amartya. "How to Judge Globalism," The American Prospect, Winter 2002: pp. 2-6. Stiglitz, Joseph E. "Globalism's Discontents," The American Prospect, Winter 2002: pp16-21. Synnott, Thomas W., III. "Remaking the World Financial System." The National Association of Business Economists, Business Economics, July 1, 2000, no. 3, vol. 35. Tobin, James, and Ranis, Gustav. "Flawed Fund: IMF's Misplaced Priorities." The New Republic, March 1998.
Weisbrot, Mark. "The Mirage of Progress," The American Prospect, Winter 2002: pp. 10-12. Weller, Christian E., and Hersh, Adam. "Free Markets and Poverty," The American Prospect, Winter 2002: pp. 13-15. Wolf, Martin. "After Argentina." Financial Times (London), December 21, 2001. World Bank Briefing Paper, "Does More International Trade Openness Worsen Inequality?" April 2000, www.worldbank.org/html/extdr/pb/globalization/paper1.htm.