Regional Trade and Investment
In the past few decades the whole world has benefited from the reduction of trade and investment barriers because it stimulated international trade and foreign investment which proved to be the primary engines for economic growth. On the trade side, there was a trend over the past 20 years for neighboring countries to move toward regional economic integration. Examples of this regional integration are the European Union, the North American Free Trade Agreement (NAFTA), the Asian Pacific Economic Cooperation (APEC), and the Latin American Free Trade Area (LAFTA). Africa is the only continent that has not taken part in these integration activities. The new trade zones were designed to promote business activities within the blocks. On the investment side, the trade zones fostered more balanced two-way foreign direct investment so that not only did the more advanced countries invest in the zones' less developed countries, but the less developed zone economies also invested in the more advanced countries. The four chapters in this part concern themselves with the trade, investment and economic growth consequences of these trends.
Xu's chapter examines the time series properties of the investment rate, the volume of trade, and the economic growth rate in eight East Asian economies. Xu finds that permanent changes in investment rates and trade have no significant long-run effects on economic growth rates--a surprising result with serious implications.