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Labor‐Eliminating Technological Progress and Foreign Direct Investment

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  • John Gilbert
  • Onur A. Koska
  • Reza Oladi

Abstract

Capital‐scarce emerging economies/developing countries often depend heavily on the inflow of foreign direct investment (FDI) to sustain economic growth. However, if a developing economy experiences labor‐eliminating technological change through the adoption of automating technologies in manufacturing, an inflow of capital may replace labor in manufacturing. This, in turn, may compel policymakers to advocate for a foreign investment tax to restrict the inflow of capital. Contrary to this view, we show that in such an environment, wages will rise, and any policy that restricts the inflow of foreign capital does not benefit workers.

Suggested Citation

  • John Gilbert & Onur A. Koska & Reza Oladi, 2026. "Labor‐Eliminating Technological Progress and Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 34(2), pages 472-481, May.
    • Handle: RePEc:bla:reviec:v:34:y:2026:i:2:p:472-481
    DOI: 10.1111/roie.70033
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