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Attitudes Towards Foreign Products and Welfare with Capital Mobility

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  • Jean-Marc Callois
  • Carl Gaigné

Abstract

We develop a model of trade with imperfect competition to study the welfare implications in developing and developed countries of the asymmetry in attitudes towards foreign products. In the developed country, consumers benefit from a better perception of foreign products while the rental rate of capital declines as long as the location of capital remains unchanged. However, when capital is mobile, the developing country hosts more and more capital at the expense of the developed country as perception of varieties produced in the developed country improves and the surplus of consumers in the developed country can decrease.
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  • Jean-Marc Callois & Carl Gaigné, 2010. "Attitudes Towards Foreign Products and Welfare with Capital Mobility," Open Economies Review, Springer, vol. 21(5), pages 751-770, November.
    • Handle: RePEc:kap:openec:v:21:y:2010:i:5:p:751-770
    DOI: 10.1007/s11079-009-9115-y
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    More about this item

    Keywords

    Product of origin; Capital location; Consumer’s surplus; F12; F21;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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