Recent trends in Japanese foreign direct investment, a look at why the United States trade deficit with China is so large, and a re-examination of whether dependence on primary commodities is detrimental to a country's economic development are the topics covered in the current issue of the International Economic Review (IER), a publication of the U.S. International Trade Commission's Office of Economics.

The IER is produced as part of the ITC's international trade monitoring program. The program's purpose is to keep the Commission informed about significant developments in international economics and trade and to maintain the Commission's readiness to provide technical information and advice to policymakers in the Congress and the executive branch. The opinions and conclusions of the IER are those of the authors and do not necessarily reflect the views of the Commission or any individual Commissioner.

The current issue September/October 2001 includes the following articles:

• Analysis of Japan's Recent Foreign Investment Trends -- There are few formal restrictions on foreign direct investment (FDI) in Japan, and in recent years the government has taken steps to address remaining investment-related impediments. Nonetheless, the level of foreign direct investment in Japan remains low and is less than that for Japanese FDI abroad. Japan experienced a surge in FDI in recent years due to structural changes in the economy, with major investments in finance/insurance, telecommunications, and petroleum.

• Why is the U.S. Trade Deficit with China so Big? -- Whereas U.S. trade deficits have arisen in general when U.S. investment spending exceeds U.S. domestic savings -- due in recent years to the attractiveness of the U.S. economy to foreign investors, the comparatively lower savings rate of U.S. consumers, and until recently U.S. federal budget deficits -- several other factors affect the U.S.-China bilateral trade deficit in particular. These include China's high savings rate, differing measurement of entrepot trade through Hong Kong, China's tariff and nontariff trade barriers, trade diversion between China and other Asian countries, and the Chinese government's recent use of trade policy to boost slow domestic spending in China.

• The Return of Dependency Theory: Is Primary Commodity Specialization Bad for Development? -- In the 1970s, most economists became disenchanted with dependency theory -- and its consequent import substitution policies -- for lack of evidence that specialization in primary commodities was damaging to a country's economic development. The anti-globalization movement of current times appears to be more willing to believe such dependency theories without supporting evidence. Whereas commodity dependence may indeed correlate with fluctuating terms of trade, it is neither clear that commodity prices are in fact trending down or whether living standards would be necessarily depressed if they did. Although other reasons -- such as bad economic policies -- may be more at fault, it is nonetheless true that primary commodities have not fared well on export markets in recent years and that such countries' external debts have been high.

In addition, the publication reviews U.S. economic performance relative to other major trade partners, U.S. trade performance, and economic forecasts. Comparative economic indicators for major industrialized countries are also provided. An annual IER chartbook depicting trends in U.S. trade with major trading partners and regions is also included in the IER series.

The current issue of the IER (USITC Publication 3466, September/October 2001) will be available on the ITC's Internet server at www.usitc.gov. To request a printed copy, write to the Office of the Secretary, U.S. International Trade Commission, 500 E Street SW, Washington, D.C. 20436, or fax requests to 202-205-2104.

To be added to the mailing list for the publication, write to the Office of Economics, U.S. International Trade Commission, 500 E Street SW, Washington, D.C. 20436, or fax requests to 202-205-2340.