Policy makers the world over have always tried to stimulate new economies by supporting local business. At times they have done so selectively, devising schemes and areas of support that maximise economic stimulation. Take export for example: One does not need a degree in economics to realise that export is good for the economy. It is, therefore, little wonder that governments around the world have, for decades, tried to think up new ways of supporting export activities of their local businesses.

When it comes to attracting foreign direct investment (FDI), the benefits are not quite as unequivocal because, whereas a country with high unemployment and low technology would benefit greatly from foreign companies opening up factories there, the long-term effects of a foreign company buying up a large local brand name company are not necessarily all positive. Nevertheless, there has long been general consensus that, given the right circumstances, FDI attraction is a good thing for a country's economy.

This is why governments and the EU have tried to target their support of international trade and investment, roughly along a number of priorities, namely: (1) the export and FDI attraction in high value-added and strategic industries; (2) the export and FDI attraction in other industries; and (3) import, outgoing FDI and other internationalisation activities. In my opinion, the first group has been given priority, the second group was supported passively and the last group was regarded as not eligible for support and sometimes it was even discouraged.

The rationale for this prioritisation is found in classical macro-economic theory, whereby it can be mathematically proven that export and FDI attraction are beneficial to the economy whereas imports and outward investments are a drain on the economy. Simply put, governments have argued against some types of internationalisation by debating why they should support a company that wants to import goods, which will ultimately worsen the balance of payments situation and endanger local industry. Moreover, why should governments encourage local companies to invest their locally-earned capital in production facilities abroad, thus draining the economy and moving jobs overseas?

However, as the world economy eliminates barriers to trade and continues its irreversible development towards globalisation, it becomes increasingly evident that such anti-liberalistic arguments are short-sighted and ultimately counterproductive.

Let us start by looking at the case of outward FDI, that is, when local companies buy parts of foreign companies, set-up operations in foreign countries or invest in joint ventures outside the borders of their own country.

Companies do not invest abroad without reason. They do it because it is necessary in order to compete. Typically, their investments have the purpose of either promoting sales or outsourcing some of the company's activities. In both cases, it is a necessary step in order for the company to be competitive and grow. A country which fosters such activities will end up hosting companies that are strong international players whereas discouraging such activities will disadvantage local companies - not only in terms of international competition but also, indirectly, in terms of the competition with foreign players in the fight for local market shares.

Furthermore, since it might be strategically unsound for the company to move its core skills abroad, the company will typically be looking to outsource activities that are not knowledge-based and which are not high value-added. Consequently, a country looking to upgrade its economy - and hereby one implicitly understands an economy which is not struggling with high levels of unemployment - would be better served by encouraging such activities.

But what about imports? How can it possibly be in the national interest to promote importation?

First of all, we have to acknowledge the fact that in an open economy consumption is not import-driven. Consumers do not have more money to spend just because there are more goods available or because these goods are available at a lower price. But if local companies - through the right contacts and information - are able to "buy better" and more intelligently, the country will be able to buy more products or better products with the same money and companies relying on imports for production will be able to make cheaper or better products. Therefore, reducing the transaction cost through cheaper imports will ultimately contribute to increasing the nations' wealth and make local companies more competitive - at home as well as abroad.

Only in the case where such imports substitute locally-manufactured products could there be negative repercussions of such a move. However, in the case of Malta, examples of this are few and, besides, not supporting internationalisation on the basis of such an argument is in effect "protectionism by default" - keeping alive unsustainable business sectors at the expense of the economy as a whole.

History has shown us that protecting industries from international competition only weakens them whereas early exposure to international competition strengthens sectors and lays the cornerstones for the development of centres of excellence.

Finally, several studies of European SMEs have shown that a company's propensity to export increases when the company is engaged in imports. So there is every reason to believe that the company which starts its international activities by importing will go on to internationalise in other areas as well.

Nowadays, we often see the term "internationalisation" used rather than the more narrow description "international trade and investment". As the tertiary sector has overtaken the secondary sector as the most important in the economies of the developed world, import and export of goods and services are no longer the only activities in international trade. Furthermore, internet and globalisation mean that the international activities of companies are too complex to be encompassed by the term "trade and investment". This means it can be very difficult to distinguish import, export, inward FDI, outward FDI, outward knowledge transfer and inward knowledge transfer.

In this day and age we are talking about what has been termed a "born global" but the demarcation lines between internationalisation activities are becoming blurred in more traditional industries too. This is another reason for not trying to distinguish between different internationalisation activities because these become so intertwined that they are impossible to separate.

In conclusion, the case for trying to be selective in internationalisation support simply does not hold water. Once a country has decided to be part of an open economy, committed to reducing trade barriers, it would do well to simultaneously reduce transaction costs (such as taxes, port-charges and red tape) and encourage all types of internationalisation because doing otherwise would be counter productive in the long run.

Mr Tabone is president of the Malta Chamber of Commerce and Enterprise.