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Foreign Direct Investment and Training in the Host Country: The Tariff-Jumping Argument Revisited

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  • Abdelhakim Hammoudi
  • Wadii Hatit
  • Lamia Rouached

Abstract

We analyze the direct investment versus export decision of a multinational firm in competition with a potential entrant in a host country. We consider a workers' skills asymmetry between the host and the multinational home countries. We also give the multinational the possibility to train all (or a part of) the hired workers when investing. We show that an improvement in the workers' skills in the host country does not systematically increase the multinational incentive to invest. We also demonstrate that the tariff-jumping investment can improve the welfare of the host country even if it excludes the local firm from the market.

Suggested Citation

  • Abdelhakim Hammoudi & Wadii Hatit & Lamia Rouached, 2013. "Foreign Direct Investment and Training in the Host Country: The Tariff-Jumping Argument Revisited," The International Trade Journal, Taylor & Francis Journals, vol. 27(1), pages 36-62, March.
  • Handle: RePEc:taf:uitjxx:v:27:y:2013:i:1:p:36-62
    DOI: 10.1080/08853908.2013.738523
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    References listed on IDEAS

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    1. Yasuyuki Todo & Koji Miyamoto, 2002. "Knowledge Diffusion From Multinational Enterprises: The Role of Domestic and Foreign Knowledge-Enhancing Activities," OECD Development Centre Working Papers 196, OECD Publishing.
    2. Almeida, Rita K., 2003. "The Effects of Foreign Owned Firms on the Labor Market," IZA Discussion Papers 785, Institute for the Study of Labor (IZA).
    3. Hong Tan & Lopez-Acevedo, Gladys, 2003. "Mexico : in-firm training for the knowledge economy," Policy Research Working Paper Series 2957, The World Bank.
    4. Peter Nunnenkamp, 2004. "To What Extent Can Foreign Direct Investment Help Achieve International Development Goals?," The World Economy, Wiley Blackwell, vol. 27(5), pages 657-677, May.
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