Some recent noteworthy studies:
Data from India indicates that foreign direct investment can reduce capital misallocation. The researchers conclude, “Capital misallocation can be an important hurdle for development. By preventing the firms with the highest returns from growing, it reduces the quantity produced, increases the prices consumers face, and reduces the wage bill. If changing the local banking market is complicated because of bureaucracy or political capture, governments have a powerful lever that can be used to reduce misallocation: Increasing access to foreign capital for domestic firms.”
A recent World Bank report finds:
Global value chains (GVCs) account for almost 50% of global trade today. Over the past 30 years, they have helped poor countries grow faster, lifting many out of poverty.
GVCs can further boost inclusive and sustainable growth, create better jobs and reduce poverty, if developing countries implement deeper reforms and industrial countries pursue open, predictable policies.
A 1% increase in GVC participation is estimated to boost per capita income levels by more than 1% - about twice as much as conventional trade.
New technologies, such as automation and 3D printing, are a frequent cause for concern. But they are more likely to boost GVCs as trade and communication costs come down, new products are developed, and productivity increases.
A brand new Federal Reserve paper concludes, “Most previous work on the “China shock” emphasized its detrimental consequences for U.S. employment. Our findings send a different message: the price effects of trade with China were large and beneficial to U.S. consumers. We estimate that falling prices in product categories that were more exposed to trade with China created hundreds of thousands of dollars in consumer surplus for each displaced job. These prices effects are particularly large in product categories selling to low-income consumers” (pg. 42).