Foreign Capital and International Division Trap

Abstract

The paper used the panel data from 2000 to 2014 of 9 developing economies to research the effect of FDI on GVC-participation of host countries and International Division of Labor Trap from the two dimensions of theory and demonstration. And further researches are carried on, which shows that FDI is beneficial of deepening GVC-participation of developing host countries. Furthermore, FDI has solidified the international division of labor by driving the developing host countries participate into the international production system leading to be fallen into the trap of international division of labor.FDI has solidified the level of international division of labor in developing host countries through the pre embedded "GVC", and the backward embedding of GVC is good for the separate developing host countries from the bottom Division. Among the three mechanisms,Scale effect and cluster effect could not be beneficial for developing host countries to separate from the bottom of Division. The learning by doing effect and path locking effect in Inherent division of labor further lead to be fallen in the international division of labor trap.