The crises in various emerging markets have affected Europe less than other parts of the world economy. This is largely because intra-regional relations dominate foreign trade and direct investment of EU countries. Yet, ongoing economic turbulences involve risks also for Europe.
The multilateral trade negotiations in the Uruguay Round have stagnated for years. At the same time, the world economy has witnessed a strong revival of regional trade arrangements. This juxtaposition suggests that major trading partners are drifting away from the GATT. Systemic weaknesses in the GATT framework, particularly the lack of effective sanction mechanisms, and the overly ambitious agenda of the Uruguay Round have rendered it difficult to reach a multilateral trade accord. In the EC, the Internal Market programme has been given priority over the GATT negotiations. And the recent move by the United States towards regionalism also threatens to undermine the basis upon which multilateralism could rest in the future. The future of the world trading system depends critically on whether the trading partners realise that regionalism cannot be defeated successfully by forming countervailing protectionist blocs. To prevent a further erosion of the fundamental GATT principle of mostfavoured- nation treatment, sweeping decisions are required in three respects: — In concluding the Uruguay Round, swiftness is more important than completeness. An immediate agreement should comprise all tentative achievements reached so far. — Trade disputes left operf for the time being and new challenges such as ecologically motivated trade barriers should be tackled in follow-up negotiations to be started immediately after conclusion of the Uruguay Round. — The EC and the United States should commit themselves to open regionalism by relaxing restrictive accession procedures. Moreover, GATT obligations must be extended by a provision stipulating that third countries whose trade is negatively affected by regional integration schemes will be compensated. The responsibility to establish the conditions under which regional integration and multilateral trade liberalisation could reinforce each other rests with the world's leading trading partners. Open regionalism in a strong multilateral framework would not only break the vicious circle that is eroding the world trading system, but may even induce a virtuous circle of mutual trade liberalisation between regional groupings.
This paper provides a computable general equilibrium analysis of the medium to long-run impact of FDI inflows on poverty and income distribution in Bolivia. The CGE analysis addresses several important transmission channels which have been neglected in the empirical literature by (i) investigating the impact of FDI inflows on incomes of urban and rural households; (ii) taking into account informal activities; and (iii) differentiating between various segments of the urban workforce, whereas previous studies are typically confined to the dichotomy between white-collar and blue-collar workers in manufacturing industries. The simulation results suggest that FDI inflows add to Bolivia's investment ratio, enhance economic growth, and reduce poverty. However, the income distribution typically becomes more unequal. In particular, FDI widens income disparities between urban and rural areas Our results point to two levers through which the Bolivian government may promote growth-enhancing and poverty-alleviating effects of FDI. First, it seems important to overcome labor market segmentation. Second, complementary public investment in infrastructure may help remove bottlenecks in the absorptive capacity of the economy that tend to limit productive employment of the poor. Yet, simulated policy reforms or alternative productivity scenarios are hardly effective in reducing the divide between urban and rural areas.
Various financial crises have eroded confidence in the wellfunctioning of international capital markets. Against this backdrop, this article discusses the demand of globalization critics to radically remodel the international financial architecture and assesses recent changes in the regulatory framework. We conclude that some radical proposals have been rejected for good economic reasons. However, market failure in global financial intermediation requires regulatory reforms going beyond what policymakers have agreed upon so far. In important respects, the reform process appears to be stalled, mainly because of conflicting interests of major political players.
We show that the impact of capital goods imports and FDI inflows on economic convergence depends on the local capacity of emerging economies to absorb superior technologies.
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