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
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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-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.:
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