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January 2013

Some Types of Foreign Investment Are Better Than Others: A Look at Factors That Help FDI Boost the Local Economy

Thomas Farole's picture

Maseru, Lesotho, by night.Despite being a small, poor, landlocked country, Lesotho leveraged foreign direct investment (FDI) to become Africa’s largest apparel-exporting country, generating upwards of 50,000 jobs for its citizens. Neighboring Swaziland has also relied on foreign investors as the main source of exports, growth, and employment in its economy. Around the world, governments put significant resources into attracting foreign investors –through investment promotion, offering fiscal incentives, and establishing special economic zones, for example – in the hope of catalyzing their economies. And it’s not a bad strategy – FDI can bring significant benefits to developing country economies. It can generate employment, contribute to a country’s infrastructure and potentially bring in additional tax revenues.

Shifting Focus in Trade Agreements – From Market Access to Value-Chain Barriers

Bernard Hoekman's picture

Chain. Source: http://www.flickr.com/photos/pratanti/5359581911/Value chains are an ever more prominent feature of global commerce, with goods being processed – and value being added – in multiple countries that are part of the chain. No longer is trade as simple as manufacturing in one country and selling in another. Rather, goods often cross many borders, undergoing processing and accruing components in diverse settings before ending up in a retail store. A new database developed by the OECD and WTO provides greater clarity into value-added trade trends. Looking at the world through a “value-added” lens challenges our conventional thinking about trade policy, and in particular, the focus of where policy makers should be spending their efforts. This new perspective makes clear that to truly benefit from the dynamism of value chains, governments will need to cooperate in new ways -- with each other and with members of the private sector.

Re-thinking Trade Policy Priorities in a Supply-Chain-Driven World

Bernard Hoekman's picture

Supply trucks in Lao. Source: World Bank.A company importing desktop computers into Russia expects border processing times of up to six weeks. Chinese customs authorities take so long inspecting drug shipments that a global healthcare company must hold nine days’ worth of inventory. Concerned about the prevalence of theft, a cell phone manufacturer must provide a security detail for overland shipments in Mexico.

These are examples of the supply chain barriers that, as a whole, are more detrimental to world trade than tariffs, according to a new report, Enabling Trade: Valuing Growth Opportunities, released today at the World Economic Forum in Davos. The study, a collaborative effort between Bain & Co., the World Bank and the World Economic Forum, concludes that a concerted effort to reduce supply chain barriers to levels observed in the best performing countries could increase global GDP by some 4.7 percent – six times more than what could be achieved from eradicating all remaining import tariffs.

Welcome to The Trade Post

Mona Haddad's picture

A trading post from the old west. Source: http://www.flickr.com/photos/reservatory3/Welcome to The Trade Post, the World Bank’s new blog on international trade. Here, our trade experts will share their research, observations and questions. We will post when a new, interesting trade study is published or when a solution to one country’s trade policy issue might be applicable to others. We will discuss data, trends and complex ideas. But, above all, our goal is to make our work accessible and understandable, and we hope to engage a wide audience.

Some of our past blogging – originally published elsewhere in the World Bank– can be found here in our archive. We have remarked on the ways extreme flooding in Thailand exposed the vulnerability of supply chains, pointed out political hurdles to infrastructure planning in Africa, and described Indonesia’s efforts to make its main port more efficient. We believe that, while some of the issues we address are technical, we find them fascinating and we should be able to explain them to any layperson willing to listen.