The OECD initiative on investment for development: a policy framework for investment: trade policy

Trade policy makers need to adapt government policies to changing circumstances

This paper explores how trade policy can encourage investment and maximise the contribution of investment to development growth.

In order to do so, the paper discusses the changing interrelationship of investment to trade and gives an overview of how trade policies can promote an attractive environment for investment which can lead to economic growth.

As the study points out, trade policy makers may need to adapt and revise government policies as needs and the relative competitive advantages change. Usually it is not the trade policy that defines competitive advantage but rather sets the framework for competitive industries to develop.

In order to create an attractive environment for investment and growth generally, policy makers may consider:

to what extent trade policy restrict the size of potential markets for investors
how enlarging local/regional markets and giving access to new export markets in third countries can create new investment opportunities
to what extent trade policy may curtail developing country exports, reducing the developing country’s ability to purchase imports and ability to source investment including FDI
if trade policies curb imports from other countries that may benefit the home country’s consumers including intermediary products used by their own efficiency-seeking MNEs.

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The OECD initiative on investment for development: a policy framework for investment: trade policy