Introduction to the Special Section: Policy Instruments for Innovation, Investment and Global Trade
| Date | 01 September 2017 |
| Author | Andreas Klasen |
| DOI | http://doi.org/10.1111/1758-5899.12479 |
| Published date | 01 September 2017 |
Introduction to the Special Section: Policy
Instruments for Innovation, Investment and
Global Trade
Andreas Klasen
Offenburg University
Abstract
This Special Section on policy instruments for innovation, investment and global trade presents several approaches how to
foster economic growth. It deals with well-known instruments such as guarantees and loans for trade finance as well as export
credits. It also sheds light on how foreign direct investment strategies can be tremendously successful, and how governments
can learn from effective policy approaches. It shows how financial instruments for investors can be used to manage and min-
imise risks. And, last but not least, it has a look at the government toolbox for innovation as well as the ingredients for an
ecosystem combining different policy instruments.
International business today is related to several dimensions:
disruptive technologies, globalisation of markets, interna-
tional trade and foreign investments lead to both challenges
and opportunities for companies being active in cross-
border business. Digital technologies are changing the
business environment at breathtaking speed. Exports are
important drivers to increase economies of scale, boost sales
volumes and diversify companies’customer base. Foreign
direct investment (FDI) can substantially yield competitive
advantages for firms. And although recent political events
may signalise a shift away from the liberalisation of trade
and investments, national economies will be increasingly
interdependent transforming both countries and businesses.
Governments provide opportunities for technological
transformation and sustainable economic development
through the establishment of coherent policy goals and
innovation systems (Patanakul and Pinto, 2014). An innova-
tion policy mix includes, for example, the provision of an
appropriate infrastructure, networks of publicly-financed
research institutes and universities, as well as a sound legal
framework with the ability to protect intellectual property
rights. Government financing instruments such as equity
guarantees or conditionally repayable loans also play a cru-
cial role for innovation.
Foreign direct investors operate in a global environment
characterised by heterogeneous political and legal systems,
economic conditions and cultural behaviour. Host country
governments often adopt policies to encourage inward FDI
through bilateral investment treaties and national invest-
ment laws. Investment codes typically include provisions
such as promises of national treatment, most-favoured-
nation clauses, tax incentives, security measures, as well as
dispute resolution fora. Risk management instruments pro-
vided by home governments include political risk insurance
or investment guarantees.
The expansion of international business activities through
a multilateral trading system has provided a major pillar for
growth enjoyed by industrialised countries in the last cen-
tury. Developing countries also opened their economies to
take full advantage of opportunities for growth through trade
(Were, 2015). And although there is substantial gridlock due
to rising multipolarity, fragmentation, harder problems, and
institutional inertia, the expansion of the multilateral trading
system shaped by the WTO is still effective in many cases
(Klasen, 2017). In addition, government financing instruments
such as trade finance and export credit programmes provide
a fertile ground companies need to prosper.
Global trade as an engine for sustainable
development
Countries such as the Republic of Korea and Mauritius have
been highly successful in reducing poverty by becoming
active participants in the global trade environment. This is
not only related to a reduction of government intervention
and an application of a liberal trade regime. International
trade is also strongly connected with a well-developed and
functioning financial environment including trade credit
(Auboin and Engemann, 2014). Disruptions in trade and
export finance lead to a severe decline in companies’output
on a micro level as well as a contraction in trade on a
macro level. With an increasingly short-term nature of pri-
vate financial markets, the role of government agencies and
public financial institutions has become more important.
There is strong evidence suggesting that markets are failing
to efficiently balance supply and demand of trade finance.
Market failure due to, for instance, inadequate pricing of
trade finance products requires state intervention.
Multilateral development banks (MDBs) such as the Asian
Development Bank fill market gaps for trade finance by
Global Policy (2017) 8:3 doi: 10.1111/1758-5899.12479 ©2017 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 8 . Issue 3 . September 2017 389
Special Section Article
To continue reading
Request your trial