Do Trade and Investment (Agreements) Foster
Development or Inequality?
Pierre Kohler and Francis Cripps
GDAE Working Paper 18-03
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This paper proposes to revisit the debate on trade and investment agreements (TIAs), development and inequality, looking at the role of Global Value Chains (GVCs) and trans-national corporations (TNCs). After presenting stylized facts, the paper summarizes key contributions to the literature to provide a long-run perspective on external liberalization. Based on this stock-taking, it takes a fresh critical look at the TIAs-GVCs-TNCs nexus and its effects using data on value-added in trade and new firm-level data from the consolidated financial statements of the top 2000 TNCs. It then turns to the role of GVCs as a vehicle for economic concentration. The paper concludes by calling for a less ideological policy debate on TIAs, which acknowledges the mixed blessings of external financial and trade opening, especially their negative distributional impact and destabilizing macro-financial feedback effects. As an alternative to short-sighted protectionism, it discusses possible options for addressing undesirable effects arising from TIAs, such as rising carbon emissions, economic instability and inequality.
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The Global Development and Environment Institute’s Globalization and Sustainable Development Program examines the economic, social and environmental impacts of economic integration in developing countries, with a particular emphasis on the WTO and NAFTA's lessons for trade and development policy. The goal of the program is to identify policies and international agreements that foster sustainable development.