Trade Versus Investment Liberalisation
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 liberalisation of commodity trade versus liberalisation allowing direct investment versus the two together. For a relatively skilled-labour-scarce economy, I show that trade and investment liberalisation are quite different, and that the two 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.