NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Trade versus Investment Liberalization

James R. Markusen

NBER Working Paper No. 6231
Issued in October 1997
NBER Program(s):   ITI

Despite several theoretical contributions and considerable informal empirical evidence" to the contrary, a notion that trade and investment are substitutes persists in trade policy" analysis. This paper considers the liberalization of commodity trade versus liberalization" allowing direct investment versus the two together. For a relatively skilled-labor-scarce" economy, I show that trade and investment liberalization are quite different together are in a sense complements. The intuition may be that direct investment provides such" a country with crucial inputs (knowledge-intensive producer services) without which the" country cannot effectively exploit its abundant factors in certain industries."

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Document Object Identifier (DOI): 10.3386/w6231

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