[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Internet Connection
THE WORLD TRADE ORGANIZATION
The World Trade Organization (WTO) is the global organization
that deals with the rules of trade between nations. The
WTO’s Web site, www.wto.org, contains material for a range of
users, from the general public to students, academics, and
trade specialists. It includes introductions to WTO activities
and a large database of official documents. In recent years,
the WTO has become a focus of protest by those opposed
to globalization and free trade. One group that has actively
campaigned against the WTO is Global Trade Watch, whose
Web site (www.citizen.org/trade/) provides information on the
views of those fighting what they identify as the WTO’s model
of globalization.
wages when they move into sectors where their productivity is highest, and consumers
benefit from the lower prices. So too with investment. When investment
flows to where its return is highest, world output (income) is increased.
But just as not everyone necessarily gains from trade according to comparative
advantage, so too not everyone will necessarily gain from the free flow of capital.
There will be some investment diversion from other countries to Mexico, as Mexico
becomes more attractive to investors throughout the world because of its improved
access to the huge American market. Most economists believe that the net effect on
investment in the United States will be negligible, and could even be positive. Industries
within the United States that see their opportunities expand by selling more to Mexico
will increase their investment, more than offsetting the reduced investment from
firms that decline in the face of competition from Mexican imports.
In fact, investment flows augment the gains from trade that would occur in
their absence because there are important trade-investment links. American companies
producing abroad tend to use more parts from America, just as French companies
producing abroad tend to use more French parts. Thus, flows of investment often serve
as a precursor to exports.
Wrap-Up
AREAS OF INTERNATIONAL COOPERATION
Multilateral trade agreements—WTO
Based on principles of reciprocity, nondiscrimination, and transparency
Regional trade agreements—NAFTA, European Union
Risk of trade diversion rather than trade creation
May be better able to address complicated issues, such as those involving
investment
INTERNATIONAL COOPERATION ∂ 449