Review by: Claiton Masotsha, Master’s Student in International Trading Systems.

Mumtaz Hussain Shah’s paper offers a thorough exploration of the role of WTO-led liberalisation in attracting Foreign Direct Investment (FDI) to 11 developing economies in East Asia and Pacific (EAP) region from the period of 1988 to 2015. The study is both methodologically sound and deeply researched as it consists of a clear focus and fitting application of panel data econometrics.

What makes the paper academically strong is its empirical thoroughness. The models used, which include the fixed and random effects models using the Hausman test help to address key econometric issues like heteroscedasticity and multicollinearity. More captivating are the core findings, which show that WTO membership and trade openness display significant positive relationship with inward FDI. This is demonstrated alongside other notable influential factors such as market size, economic development and strong intellectual property rights. Shah’s conclusion suggests that the region primarily attracts vertical, efficiency seeking FDI and this is supported by the analysis of exchange rate effects.

Although this paper gives invaluable insights, it comes across inherent challenges in quantifying the WTO’s influence when looking from the international trading systems perspective. The total trade volume, a proxy for liberalisation comes up as a simplification as it measures an outcome of liberalisation rather than the policy shift itself. It is important to note, as Shah points out that the positive effect of WTO membership dummy variable remains a “black box”. While the paper effectively determines that membership matters beyond just general openness, it fails to distinguish whether the benefit comes from specific agreements like TRIMS, TRIP or the credibility of the whole treaty framework. This could be a gap to fill in future research.

In summary, Shah’s paper effectively demonstrated a positive correlation between WTO accession and FDI in the EAP region. The paper stands as a good example of applied econometrics and gives clear policy relevant insights. The main limitation as noted above is the inability to uncover the specific mechanisms of the WTO effect. However, this shortcoming also brings to light an important pathway yet to be covered in future research, especially in international trading systems, hence it prompts scholars to look beyond the dummy variable to explore more into the specific rules that drive investor influence.