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Quantitative Restrictions and Foreign Investment in a Monetary Economy

  • Chi-Chur Chao

    (Department of Economics, The Chinese University of Hong Kong, Hong Kong)

  • Eden S. H. Yu

    (Department of Economics and Finance, City University of Hong Kong, Hong Kong)

This paper examines the welfare effect of foreign investment under quantitative restrictions for a host country with a cash-in-advance constraint. This constraint results in a divergence between the consumer virtual prices and the world prices. If the cash required for purchasing exportable goods exceeds that of the importable, additional foreign investment can widen the price divergence and, thus, reduce welfare. This result is contrary to the conventional view that foreign investment is non-immiserizing under quantitative restrictions. On the other hand, if the cash requirement is larger for buying importable goods, foreign investment can still promote welfare.

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Article provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.

Volume (Year): 1 (2002)
Issue (Month): 1 (April)
Pages: 25-32

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Handle: RePEc:ijb:journl:v:1:y:2002:i:1:p:25-32
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  1. Theodore, Palivos & Chong K. Yip, 1996. "The Gains from Trade for a Monetary Economy Once Again," Departmental Working Papers _071, Chinese University of Hong Kong, Department of Economics.
  2. Dei, Fumio, 1985. "Voluntary export restraints and foreign investment," Journal of International Economics, Elsevier, vol. 19(3-4), pages 305-312, November.
  3. Brecher, Richard A. & Diaz Alejandro, Carlos F., 1977. "Tariffs, foreign capital and immiserizing growth," Journal of International Economics, Elsevier, vol. 7(4), pages 317-322, November.
  4. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
  5. Anderson, James E & Neary, J Peter, 1992. "Trade Reform with Quotas, Partial Rent Retention, and Tariffs," Econometrica, Econometric Society, vol. 60(1), pages 57-76, January.
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