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This paper explores how the emergence of the “new regionalism” and a surge in direct investment relate to each other and to the theory of international trade. Reform in the East and South—the most significant economic event of our era—plays a central role. Countries anxious to implement economic reform establish preferential trading arrangements with industrial countries intended to induce direct investments by firms supplying products to their partners. This does not imply that direct investment will consist mainly of flows between geographic neighbors. Multilateral liberalization is crucial, and this implies globalization: firms will be competing with each other on a worldwide basis. The paper's combination of theories results in predictions very much different from the traditional view of direct investment motivated by a desire to circumvent trade barriers.

This paper develops a theory, consistent with empirical evidence, of trade agreements as the exchange of market access. The WTO dispute settlement process is discussed in this context. The role of that process is neither to deter nor to punish violations of trade agreements, but to maintain reciprocity.

Over the last 60 years, multilateral trade liberalization has reduced tariffs to historically low levels. The dominant theory of multilateral trade agreements, based solely on terms-of-trade externalities between national governments, is the conventional wisdom among international trade theorists. But it features two defects that render it inconsistent with reality. This chapter proposes a simple formulation of the political economy of protection that dispenses with terms-of-trade externalities, predicts the properties that empirical work has confirmed, and is free of the counterfactual implications of the dominant approach. The model is applied to trade agreements.

“The second attempt to model monopolistic competition was far more successful than the first, essentially because the second attempt introduced a formalization that had all the relevant characteristics of monopolistic competition but was still relatively easy to handle” (pp. 1–2). The story of the first revolution is that various precursors, such as Marshall, understood that the middle ground between perfect competition and monopoly was fraught with danger, so they avoided it. In the 1930s, Edward Chamberlin and Joan Robinson independently applied the marginal revenue curve to draw the now-familiar equilibrium position for a profit-maximizing, monopolistically competitive firm. However, the first revolution never really succeeded: “Given the elegance of the monopolistic competition model, it is surprising to see how little influence it had on economic theory” (p. 10). Several of the papers make reference to the failed 1930s monopolistic competition revolution without going into detail. It seems that it is an agreed upon fact.

I think it would be fair to say that explaining the geography of multinational enterprise (MNE) activity has never been a major part of Alan Rugman's scholarly research and writings. Nevertheless, over the last 25 years, he has provided us with several useful nuggets of understanding and empirical evidence about the territorial expansion of firms, and its impact on their global competitiveness.