– By Aayushi Singh*
Introduction – Cogs of the same wheel – Trade and FDI
From where do we get the much-assumed co-relation between trade and Foreign Direct Investment (FDI)? Let us draw from the theory of Grazia Ietto-Gillies who opined that the reason for the growth of FDI and MNCs were rooted in neoclassical economics based on macro-economic principles. These theories were based on the classical theory of trade in which the motive behind the trade was a result of the difference in the costs of production of goods between two countries, focusing on the low cost of production as a motive for a firm’s foreign activity. The relation between trade and FDI flows from this. Analytical work has recently been developed by OECD in order to explore the nature of these links in quantitative terms.
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By Emilio Arteaga*
In September, Mexican President Enrique Peña Nieto announced an initiative to create Special Economic Zones that is yet to be approved by the Mexican Congress Senate. The proposed initiative will set forth the legal framework with the intention to mirror successful policies adopted around the globe, such as China’s Special Economic Zones. If the Law is adopted, the President claims that he will create three Special Economic Zones that will be located at the South-Pacific coast in order to take advantage of Mexico’s geographic competitive advantage.
The alleged purpose of this law is to close the alarming economic gap between the North and South of Mexico by creating an enabling business environment and integrating the South with global value chains. While the North and Center of Mexico have attracted considerable amounts of Foreign Direct Investment, developed important industrial hubs, and GDP per capita has increased, the South’s economic development has performed poorly and faces high poverty levels. In order to attract private investment in the south of Mexico, the President announced billions of pesos in infrastructure as well as tax and finance incentives as part of this new economic policy.
Given that subsidies are subject to the disciplines established within the legal framework of the World Trade Organization (WTO), one might question whether Mexico’s initiative is WTO compliant. Therefore, this entry explores whether the cited initiative conflicts with WTO Law. By doing so, it will first provide a brief explanation about Special Economic Zones, China’s Special Economic Zones, and the initiative proposed by the Mexican president.Read More »