2013 Reports

The Dynamics of Multinational Corporation Impacted Comparative Advantage: Relevancy to Ricardo’s View on Cross-border Investment and Samuelson’s Skepticism
about Globalization

Ozawa, Terutomo

The notion of “pro-trade” vs. “anti-trade” foreign direct investment (FDI) was conceptualized by Professor Kiyoshi Kojima (1921-2010) of Hitotsubashi University and theoretically formalized in an article in The Hitotsubashi Journal of Economics(Kojima and Ozawa, 1984; reproduced in the United Nations Library on Transnational Corporations, Vol. 8). The core idea is that multinational corporations’(MNCs’) overseas investments in emerging markets have two opposing effects on the basis for trade; one is to expand comparative advantage (i.e., a pro-trade effect), and the other is to reduce comparative advantage (i.e., an anti-trade effect). This paper shows how the above theoretical distinction helps clarify both David Ricardo’s pessimism about the welfare effect of cross-border investment on the home country and Paul Samuelson’s skepticism of the long-term benefit of free trade to the United States in an age of globalization.