Globalization? No Question! Foreign Direct Investment and Labor Commanded.

A key argument of the globalisation thesis’s sceptics, such as Linda Weiss and Hirst and Thompson, is that most Third World countries remain marginal to the international economy in terms of both investment and trade. The sceptics’ argument is supported by empirical evidence on foreign direct investment (FDI) and trade flows, which are presented in terms of US dollars. In this paper we re-examine the empirical evidence on international investment drawing on the concept of labour commanded, central to Classical Political Economy. Using data on exchange rates and wage rates (or labour costs), combined with that on dollar values of FDI, we remap the patterns of global capital flows in terms of the quantities of labour which such investment can mobilise. On this basis we draw a very different conclusion from the sceptics. In a nutshell, our conclusion is the following: developing countries are far more integrated into the global economy than the FDI data suggests, as a result of the amount of labour that can be commanded with the absolute levels of FDI, itself due to low wages.