Abstract
The trade and trade-related policies of industrial countries mainly affect developing countries, including Arab countries, in three ways.1 First, policies that restrict access to industrial countries’ markets limit the ability of developing countries to produce and export on the basis of their comparative advantage. Second, and related to the first, protection in industrial countries affects the level and pattern of investment worldwide; by locking resources into inefficient uses, protection reduces potential output in both industrial and developing countries. Even when a particular country does not currently face restrictions in sectors in which it has a comparative advantage, the possibility that they could be imposed if the country became a major supplier may discourage investment. Where economic agents do not anticipate such an intensification of restrictions, investment may yield less than its expected rate of return. Third, if developing countries choose to compete in industrial countries by establishing production facilities in those markets, the conditions attached to foreign investment in industrial countries, such as local content requirements, may affect the ability of foreign firms to compete with domestic firms.
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