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Investment Policies in the GATT

Rachel McCulloch

NBER Working Paper No. 3672
Issued in April 1991
NBER Program(s):International Trade and Investment, International Finance and Macroeconomics

Host country policies toward inward direct investment can have predictable effects on trade flows. Trade related investment measures' (TRIMs) such as local-content requirements and minimum-export requirements have recently come under official scrutiny in the General Agreement on Tariffs and Trade. This paper examines the economic and political context of the Uruguay Round negotiations on TRIMs. In the negotiations, investment measures have been treated as a particular instance of a broader problem: the proliferation of nontariff trade distortions. As with other trade distortions, the negotiating strategy has been to identify specific policies to be proscribed or limited. However, this approach ignores the typical interactions between multinational firms and host governments. Observed investment regimes are often the result of a lengthy and complex bargaining process. While some investment regimes actually alter the allocation of resources in production and trade, others affect mainly the distribution of rents between firms and host countries. In particular, the trade impact, if any, depends as much on economic conditions as on the specific combination of investment measures imposed.

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Document Object Identifier (DOI): 10.3386/w3672

Published: The World Economy, Vol. 13 No. 4, pp. 541-533, December 1990. citation courtesy of

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