The liberalization of trade and foreign direct investment: A political economy analysis

Abstract

This paper considers the implications of having trade and investment liberalization occur at different points in time. It is found that such a sequencing can be detrimental to the process of liberalization, but can never be beneficial. In particular, it is possible to find distributions of factor ownership where simultaneous trade and investment liberalization would be acceptable to the median voter, yet trade liberalization followed by investment liberalization would not. Finally, the paper derives some predictions about the effect of relative size and factor intensity differences on the likelihood of investment liberalization. © 2010 Taylor & Francis.