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Effectively Opening Labor and Capital Markets: The interplay among foreign direct investment, trade, and immigration

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  • TOMOHARA Akinori

Abstract

This paper presents a study of the dynamic interactions of two policies—inward foreign direct investment (FDI) promotion and immigration enhancement—together with choices of trade or FDI. Despite growing concern about FDI-migration relationships, the literature has not explored the dynamic interactions among FDI, trade, and immigration. Our analysis distinguishes the different effects of immigration from short-run and long-run perspectives and shows that larger immigration stocks induce FDI inflows, although immigration flows are substitutable for FDI inflows. Additionally, skilled (unskilled) immigration flows are complementary to (substitutable for) FDI inflows. Furthermore, the relative importance of FDI inflows increases compared to imports when skilled immigration flows increase. While the two policies are often suggested to resolve shortages of domestic savings and labor, our results have implications on how to tackle the increasingly daunting policy issue of population aging.

Suggested Citation

  • TOMOHARA Akinori, 2015. "Effectively Opening Labor and Capital Markets: The interplay among foreign direct investment, trade, and immigration," Discussion papers 15079, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:15079
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