Free trade is the most effective way for an LDC economy to grow long term. There are two kinds of impediments: first, political and other constraints on trade barriers; and second, competing ideas such as foreign aid, so-called "fair" trade, and others.

Because of the first impediment, LDCs can fall through the trade agreement cracks. Multilateral agreements are rare. As Brink Lindsay has noted, "since the Kennedy Round ended in 1967, only two other agreements (the Tokyo Round and the Uruguay Round) have been concluded over the subsequent three-and-a-half decades." Bilateral agreements are much more common, as the U.S. Trade Representative shows, but they effectively lock out other partners, including LDCs that could compete on cost, in favor of the preferred partner. For these reasons, there is a strong development argument for the U.S. (and other wealthy westerns) to unilaterally decreasing barriers. That has its own political constraints.

A new paper by Emily Blanchard, University of Virginia, treats barriers as endogenous to foreign investment and concludes differently. Foreign investment has a tariff liberalizing effect: Firms invest in foreign manufacturing of goods for import back to domestic markets; this decreases the domestic political demand for tariffs on the foreign producer. This endogenous effect suggests that opening up capital markets can partially substitute for negotiated reductions in trade barriers. As the introduction reads,

Current preferential tariff agreements, whether an outgrowth of colonial legacy or more recent initiatives for regional integration, may be un- derstood as an endogenous and reenforcing response to international capital flows. Indeed, the model suggests that the recent “offshoring” phenomenon, whereby vertically integrated multinational firms (e.g. Nike, Dell, Apple Computers, etc.) establish overseas manufacturing operations in low wage countries to produce goods for reexport, will afford additional momentum to bilateral trade negotiations between multinationals’ production and headquarters countries.

Through a related mechanism, the foreign exporting interests can lobby the foreign government to reduce barriers in reciprocal kind. I'm not a trade guy, but this seems like a significant step. The paper is currently out under the Berkeley Electronic Journals suite, by subscription here. It might also be available at SSRN.

So go open up your capital markets!