| Abstract: | This paper examines the key domestic institutional challenges posed by globalisation in terms of the following questions: how does economic globalisation differ from other types of economic integration, what is its impact on the extant national institutions of economic governance, what institutional innovations are required to cope with the challenges, and how can institutional change be made politically feasible? It identifies three perspectives on how national governments may respond – retreat, hold fort, or rearticulate. It concludes that though governments need to devise policies to attract MNEs, indulging in races‐to the‐bottom is not the only route, perhaps not even a desirable route. Second, to attract FDI, governments must afford labor flexibility. How they actually implement it will vary within and across countries, depending on the capacities and the willingness of governments to undertake institutional reform. Labour flexibility can be made politically feasible by increasing the levels of social insurance to protect displaced labour and by instituting programmes that increase their skills and employability. |
