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Quantitative Restrictions and Foreign Investment in a Monetary Economy

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Chi-Chur Chao & Eden S. H. Yu, 2002. "Quantitative Restrictions and Foreign Investment in a Monetary Economy," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 1(1), pages 25-32, April.
    • Handle: RePEc:ijb:journl:v:1:y:2002:i:1:p:25-32
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    References listed on IDEAS

    as
    1. 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.
    2. Dei, Fumio, 1985. "Voluntary export restraints and foreign investment," Journal of International Economics, Elsevier, vol. 19(3-4), pages 305-312, November.
    3. 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.
    4. Theodore Palivos & Chong K. Yip, 1997. "The Gains from Trade for a Monetary Economy Once Again," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 208-223, February.
    5. 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.
    6. Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, vol. 55(3), pages 491-513, May.
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    Keywords

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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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