The Responsiveness of Domestic Investment to Foreign Economic Conditions

Abstract

It is widely held by both international economists and macroeconomists that world's economies have become increasingly open in recent years. Advances in technologies of transportation and communication, it is argued, have increased mobility of goods and capital, making domestic economic outcomes increasingly dependent upon decisions by foreign economic actors and on prices detennined in world markets. The potential political implications of increasing openness have received considerable attention as well. Advances in mobility of capital and goods are likely to limit significantly ability of states to regulate their economies. Further, bargaining power of workers and communities appears to be undermined by intensifying import competition and growing accessibility of attractive investment sites abroad. Nigel Harris (1987) argues that an increasingly integrated world system lays down narrower and narrower limits to possibility of local eccentricity including reform. In a competitive system, holding down price of labor takes precedent over protecting it, and domestic economy becomes increasingly a spin-off of wider order (pp. 201-202).1 David Gordon (1988) comments in his critical assessment of this perspective that the power of labor, community and state has seemed to wither as multinational corporations sweep irresistibly around globe (p. 24). Some have gone so far as to argue that

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