The Effects of Export-Oriented, FDI-Friendly Policies on the Balance of Payments in a Developing Economy: A General Equilibrium Investigation
AbstractMany developing countries have adopted investor-friendly policies in recent years in order to attract export-oriented foreign direct investment (FDI). The effects of these policies on the external accounts have been largely ignored. This paper endogenizes FDI in°ows in a structuralist general equilibrium framework to contribute towards filling this gap. Our economy consists of: (i) a non-tradable goods sector and (ii) an export processing zone (EPZ) that hosts transnational corporations. The analysis finds that, contrary to widely-shared perceptions, the short-run effects of FDI-friendly policies on the balance of payments may frequently be negative due to the nature of both the investments and the policy measures. Moreover, balance of payments-related consequences of measures such as tax concessions and wage controls differ depending on: (i) which sector these are implemented in, (ii) the nature of international demand, and (iii) the extent of backward linkages between the EPZ and the domestic economy. JEL Categories: F21, F23, F41
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2005-03.
Date of creation: Jan 2005
Date of revision: Sep 2006
Foreign direct investment; balance of payments; export processing zones; structuralist macroeconomics; real exchange rates; income redistribution; terms of trade; transnational corpora- tions.;
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-02-01 (All new papers)
- NEP-IFN-2005-02-01 (International Finance)
- NEP-PKE-2005-02-01 (Post Keynesian Economics)
- NEP-SEA-2005-02-01 (South East Asia)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fry, Maxwell J., 1993. "Foreign direct investment in a macroeconomic framework : finance, efficiency, incentives, and distortions," Policy Research Working Paper Series 1141, The World Bank.
- Eduardo Fernández-Arias & Ricardo Hausmann, 2000.
"Is FDI a Safer Form of Financing?,"
Research Department Publications
4201, Inter-American Development Bank, Research Department.
- Martin S. Feldstein, 1995.
"The Effects of Outbound Foreign Direct Investment on the Domestic Capital Stock,"
in: The Effects of Taxation on Multinational Corporations, pages 43-66
National Bureau of Economic Research, Inc.
- Martin Feldstein, 1994. "The Effects of Outbound Foreign Direct Investment on the Domestic Capital Stock," NBER Working Papers 4668, National Bureau of Economic Research, Inc.
- Blecker, Robert A., 1996. "The new economic integration: Structuralist models of North-South trade and investment liberalization," Structural Change and Economic Dynamics, Elsevier, vol. 7(3), pages 321-345, September.
- Helleiner, G.K., 1989. "Transnational corporations and direct foreign investment," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 27, pages 1441-1480 Elsevier.
- repec:fth:inadeb:416 is not listed on IDEAS
- Blecker, Robert A & Seguino, Stephanie, 2002. "Macroeconomic Effects of Reducing Gender Wage Inequality in an Export-Oriented, Semi-industrialized Economy," Review of Development Economics, Wiley Blackwell, vol. 6(1), pages 103-19, February.
- Reinhart, Carmen, 1999. "Capital flows to developing economies: Implications for saving, investment, and growth (a comment)," MPRA Paper 13204, University Library of Munich, Germany.
- Bruce A. Blonigen & Wesley W. Wilson, 1999. "Explaining Armington: What Determines Substitutability Between Home and Foreign Goods?," Canadian Journal of Economics, Canadian Economics Association, vol. 32(1), pages 1-21, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Saunders).
If references are entirely missing, you can add them using this form.