Does Globalization Foster Economic Growth?

This article examines the effects of globalization, by especially focusing on the relaxation of local equity requirements (LERs) in developing countries. By constructing an endogenous growth model, where profit leakage to the South through LERs plays a key role, we obtain the following results. First, the relaxation of LERs in the South drives the relocation of firms from the North to the South, yielding a U-shaped growth rate. Second, our numerical simulations suggest that a sufficient relaxation of LERs is beneficial for the South, although the shared profit of joint ventures is maximized through the use of LERs.