ABSTRACT

We claim that international trade and foreign direct investment (FDI) by transnational corporations (TNCs) need not automatically lead to increased global competitiveness and convergence. Supply-side (competitiveness) policies may facilitate this process provided they address the problem of the apparent absence of a generally agreed upon framework, which recognizes that government measures may impact differently on different groups within and between countries and that they may have different short, medium and longer term effects. This necessitates focusing on global welfare and convergence-enhancing policies in the short and longer term. We suggest productivity-enhancing measures to be the best approximation available for this purpose. We move on to present a model of the determinants of productivity and competitiveness. We then propose a competitiveness strategy in line with the above, paying particular attention to the role of firm clusters, institutions and institution building.