IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v62y2019icp321-331.html
   My bibliography  Save this article

Foreign direct investment and credit market reform in a developing economy: Could these be alternative policies?

Author

Listed:
  • Chaudhuri, Sarbajit
  • Chaudhuri, Salonkara

Abstract

We examine the welfare consequences of foreign direct investment (FDI) flows and credit market reform in a small open developing economy using a 2 × 2 full-employment general equilibrium model with both labour market and capital market distortions. Apart from factor market imperfections, there is a tariff on the import-competing sector, which creates commodity market distortion. We find that either of the two policies can lead to welfare improvement under reasonable conditions. Subsequently, using a two-sector, specific factor Harris-Todaro type mode; like that of Beladi and Naqvi (1988), we have verified the robustness of the result that have earlier obtained in the full-employment case. We have found that although the effects of FDI flows on both welfare and urban unemployment are ambiguous, credit market reform unequivocally improves welfare and mitigates the unemployment problem. Considering both the cases together, it might be concluded that as a policy, credit market reform is distinctly superior relative to investment reform. The results could be useful for policymaking in a developing economy like India where multiple distortions coexist.

Suggested Citation

  • Chaudhuri, Sarbajit & Chaudhuri, Salonkara, 2019. "Foreign direct investment and credit market reform in a developing economy: Could these be alternative policies?," International Review of Economics & Finance, Elsevier, vol. 62(C), pages 321-331.
    • Handle: RePEc:eee:reveco:v:62:y:2019:i:c:p:321-331
    DOI: 10.1016/j.iref.2019.03.011
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056018305082
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2019.03.011?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    FDI; Credit market reform; Factor market distortion; Urban unemployment; Social welfare; Developing countries; General equilibrium;
    All these keywords.

    JEL classification:

    • D59 - Microeconomics - - General Equilibrium and Disequilibrium - - - Other
    • D60 - Microeconomics - - Welfare Economics - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:62:y:2019:i:c:p:321-331. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.