conduct joint intervention and coordination of macro policies with the AMF as the secretariat. Articles of the AMF could provide the modality and modus operandi of coordination and intervention.

In conclusion, let us emphasize that the concrete proposal outlined here is just one example, and the process of formning a genuine regional organization should be gradual and pragmatic. As in the case of Chinese national policy, structural reform needs to proceed simultaneously with opening or liberalization. The moves also need to be gradual and simultaneous on all fronts.

> X In several UNCTAD reports, including the World Investment Report series; the WTO's Working Group

> on the Relationship between Trade and Investment, which can be found at

<http://www.wto.org/wto/english/tratop_e/invest_e/invest_e.htm>; and OECD (2002). Smaller studies include Urata (2001), Markusen and Venables (1998), Hanson (2001), Goldberg and Klein (1997), Brainard (1997), Feenstra and Hanson (1996), Kleinert (2000), and Fukasaku and Kimura (2002); among others. Some of these are reviewed in OECD (2002).

2Japan represents a good case of how outward FDI can change the structure of both exports and imports of both host and home countries through intemational production. Over the course of about ten years (through 1999), "reverse imports" (imports from Japan's affiliates abroad) as a share of total imports have risen from 4 percent to 15 percent and these are increasing faster than the exports of parent firms. Also, the composition of Japan's imports is changing such that the share of machinery and equipment imports, mostly electrical and electronics machinery, has risen from 17 percent to 31 percent over the same time period. (UNCTAD (2002c: 46.) UNCTAD (1996c: Chapter III), UNCTAD (2001: 58), and UNCTAD (1999a: Section II). 4UNCTAD (1996c: xxiv)

> 5 UNCTAD (2002c: xv)

6This is also referred to as fragmentation. See Arndt and Kierzkowski (2001) for discussion of this topic.

7 UNCTAD (1996c: Chapter IV) and UNCTAD (2002c: Chapter V) s UNCTAD (2002c: Chapter VI) 9 UNCTAD (2002c: xx-xxi) and UNCTAD (1999a: 18)

**'°** See UNCTAD (2002c: 152-153) for further discussion of these and other possible negative consequences of FDI.

UNCTAD J (2002c: 4) During 1971-2000, the correlation between the FDI and GDP growth rates was 0.3. Similarly, a simple regression of FDI inflows against GDP during the same period is as follows: FDI inflows = -190.9 + 0.0251 (GDP). R<sup>2</sup> = 0.75, adjusted R<sup>2</sup> = 0.55, t-value of GDP coefficients = 6.0. (UNCTAD (2002c: 22).

> 12 This refers to 16 recent empirical studies that examined the effect of FDI on growth of income and productivity and that are reviewed and discussed in OECD (2002: Chapter III). This literature review focuses primarily on four questions: . J. .11) Does FDI significantly affect the rate of growth of income or productivity? 2) Does FDI 'crowd out' or 'crowd in' domestic investment? 3) Do technology and

> knowledge spillovers take place in the domestic economy? and 4) Are there any necessary preconditions (e.g., human capital, technological or financial market development) for these positive effects to materialise?" (66) The studies covered, the specific questions addressed by each, their estimation techniques and major findings are presented in Table III. 1. on pages 70-74 of the OECD's report. 13 See Urata (2001) for more on this point.

> 14 OECD (2002: 68)

15 OECD (2002: 27-32) 16 UNCTAD (1996c: 73)

> 17 Export-processing zones (EPZs) constitute one example of consistent trade and FDI policies at the national level. [EPZs include "free-trade zones, duty-free zones, free-investment zones, [and] offshore

> zones [... .]." Activities performed in EPZs include "bonded warehousing, export processing, assembling, border or port trade and financial services. However, despite these variations, export-oriented manufacturing has been the main focus of most zones." UNCTAD (2002c: 214).

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