Extending Free Trade to Include International Investment: a Welfare-Theoretic Analysis
The classic gains-from-trade theorem of Samuelson (1939) demonstrates that voluntary trade between agents with given endowments must be mutually advantageous: strictly speaking, it cannot be harmful to any of the agents. This fundamental insight underlies institutions such as the GATT which oversee trade among nations. Recently, the United States has proposed that the GATT be extended to include freedom of private investment flows. This proposal presumes that, if free trade exists initially in goods, the subsequent introduction of free capital mobility must also be beneficial to all agents. However, this is simply not true.
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