My question is motivated by thinking about the prospect of attracting FDI into developing countries. Since developing countries do not have high skilled labor or better financial / governance institutions, the motivations for FDI are either 1) cheap labor force, or 2) local market.

The first advantage (cheap labor) will gradually wither away as developing countries develop. But it seems that the second advantage will go away too if developing countries engage in trade liberalization and open up their local market.

Is it true that trade openness would reduce market seeking FDI? If so, is there any reason for FDI investors to bring to developing countries anymore?


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