ADB urges Asia Pacific region to boost trade links and secure FDI

7 Dec 16

Strengthening trade links and attracting foreign direct investment will contribute to Asia and the Pacific’s growth, and help improve resilience to emerging protectionism, according to the Asian Development Bank.

This was the conclusion of a report released yesterday by the bank examining current trends in trade, finance, migration, remittances, and other regional cooperation and integration issues. It placed a special focus on the growth of FDI. 

The election of Donald Trump as president of the US in November, on a protectionist ticket, has signaled that nationalism is rising across the globe. Economists have warned that unilateral policies that undermine free trade could mire the world in a low-grow trap.

Juzhong Zhuang, deputy chief economist at the ADB, said that trade and foreign direct investment had been key drivers of growth and prosperity in Asia and the Pacific.

“The region should guard against the threat of rising protectionism and make concerted efforts to push for freer trade and better investment policies to preserve the region’s growth momentum,” he added.

Today’s report notes that the anemic global economic recovery is continuing to weigh on the region’s trade growth, which continues to decelerate. Last year, trade growth slowed to 2.3%, below the global average of 2.7%.

Meanwhile, the report noted that the economic transformation currently being undertaken by China has also contributed to the region’s trade slowdown. Rising protectionism and nontariff barriers have also become major obstacles to trade.

The ADB highlighted that greater trade openness and FDI can strengthen the region’s resilience to slow global growth. However, in order to encourage greater FDI, countries needed to improve the quality of their institutions, business environment and policy effectiveness.

Asia and the Pacific attracts almost a third of global FDI, with more than half of this intraregional, driven by the expansion of global and regional value chains. Greater trade openness through more regional trade agreements, as well as bilateral investment treaties, were also found to provide a boost to FDI, according to the report.

The benefits of FDI include increased job creation, capital mobilisation and infrastructure development. Meanwhile, FDI can promote productivity through technological and knowledge spillover, while fostering inclusiveness through better working conditions and rising wages. 

However, the report authors cautioned that FDI does not automatically create such benefits. Different types of FDI will provide different sets of benefits – what works in one country may not work well in another. For example, FDI in extractive industries can be less beneficial than FDI that promotes trade.

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