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date: 21 February 2020

Abstract and Keywords

This article focuses on the role of the state in utilizing foreign direct investment (FDI) to achieve development. It begins by considering the benefits and dangers from trade-and-investment flows before turning to the long-standing debate about the merits of export-led growth vs. inward import substitution as a development strategy. It then examines whether the liberalization of trade-and-investment enhances economic growth, particularly in developing countries. The article also discusses “structural transformation” and its implications for labor-market policies; the importance of forced technology transfer in creating national champion firms; the role of an explicit industrial policy in today’s developmental state; and whether developing countries need more “policy space” for trade-and-investment policy than what they are entitled to under free trade agreements, bilateral investment treaties, and the World Trade Organization. Finally, it assesses the politics underlying the use of FDI to develop internationally competitive manufacturing industries in the host country.

Keywords: foreign direct investment, development, export-led growth, inward import substitution, liberalization, economic growth, developing countries, structural transformation, technology transfer, politics

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