FDI, trade openness to counter risks of protectionism – ADB

The risks of protectionism, emerging globally, may be countered by attracting foreign direct investment (FDI) and strengthening trade linkages in the Asia Pacific region, including the Philippines, the Manila-based Asian Development Bank (ADB) said on Tuesday.

“Trade and FDI have been key drivers of growth and prosperity in Asia and the Pacific,” said ADB Deputy Chief Economist Juzhong Zhuang.

“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," Zhuang said.

In its Asian Economic Integration Report 2016, the multilateral lender examined current trends in trade, finance, migration, remittances and other regional cooperation and integration issues, with a special chapter on the factors behind the growth of FDI in the region.

The report noted the anemic global economic recovery continues to weigh on the trade growth, which continues to slow down.

"Trade growth in Asia slowed to 2.3 percent in 2015, below the global average of 2.7 percent," the ADB said.

The multilateral lender noted the structural transformation underway in the People’s Republic of China also contributed to the region’s trade slowdown.

The risk of rising protectionism has increased and nontariff barriers have become major obstacles to trade, it added.
 
"Greater trade openness and FDI can strengthen the region’s resilience to slow global growth, but countries need to improve their institutional quality, business environment, and policy effectiveness to encourage FDI," the ADB said.

The Asia and the Pacific attracts almost a third of global FDI, of which more than half is now intraregional, driven by the expansion of global and regional value chains.

Greater trade openness through more regional trade agreements and bilateral investment treaties can also increase FDI.

The report noted that FDI can contribute to economic growth through job creation, capital mobilization and infrastructure development, while promoting productivity through technological and knowledge spillovers.

"It also fosters inclusiveness through better working conditions and rising wages," the ADB said.

However, the report cautioned that the benefits of FDI are not automatic.

"Different types of FDI will bring different benefits and what works in one country may not necessarily work for another," the ADB emphasized.

For example, FDI in extractive industries can be less beneficial than FDI that promotes trade which strengthens the host country’s links to international production networks. — Ted Cordero/VDS, GMA News