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Labour supply, foreign investment and welfare in the presence of public infrastructure

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  • Anwar, Sajid

Abstract

Within the context of a small open economy where both foreign investment and the provision of public infrastructure are endogenous, this paper examines the impact of an exogenous increase in labour supply. An increase in labour supply can be attributed to labour inflow. A number of empirical studies have demonstrated the importance of public infrastructure in real economies and both developed and developing countries have attracted significant foreign investment in recent years. This paper shows that, in the case of a diversified equilibrium, variations in labour supply do not affect the wage rate, provision of public infrastructure or welfare. However, an increase in labour supply decreases foreign investment as long as the producers of the private goods derive equal benefits from public infrastructure. In the case of complete specialisation, an increase in labour supply increases the provision of public infrastructure, which leads to an increase in the wage rate and foreign investment. An increase in labour supply increases welfare as long as the provision of public infrastructure involves some fixed cost.

Suggested Citation

  • Anwar, Sajid, 2008. "Labour supply, foreign investment and welfare in the presence of public infrastructure," Economic Modelling, Elsevier, vol. 25(5), pages 959-967, September.
  • Handle: RePEc:eee:ecmode:v:25:y:2008:i:5:p:959-967
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    Cited by:

    1. Pi, Jiancai & Zhou, Yu, 2014. "Foreign capital, public infrastructure, and wage inequality in developing countries," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 195-207.
    2. Jayet, H. & Marchal, L., 2016. "Migration and FDI: Reconciling the standard trade theory with empirical evidence," Economic Modelling, Elsevier, pages 46-66.
    3. Pi, Jiancai & Zhang, Pengqing, 2017. "Foreign capital, pollution control, and wage inequality in developing countries," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 280-288.
    4. Pi, Jiancai & Zhou, Yu, 2012. "Public infrastructure provision and skilled–unskilled wage inequality in developing countries," Labour Economics, Elsevier, vol. 19(6), pages 881-887.

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