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Foreign Direct Investment into Open and Closed Cities

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  • Dascher, Kristof

Abstract

This paper argues that the more open a city is to immigration, the more likely it is to welcome -- and hence also receive -- foreign direct investment. If immigration is allowed to complement the inflow of foreign capital, urban rent rises by more. This extra rise in rent aids in appeasing owners of capital specific to local traditional industries who else become worse off as foreign direct investment flows in. The paper's model may help give a simple alternative explanation of why urban centers such as Hong Kong, Singapore, Dublin or many cities on China's Eastern coast have received so much more FDI per capita. These cities could draw on a nearby pool of extra labor that -- by driving rents up and keeping wages down -- may have been decisive in the political struggle over whether to let foreign direct investors in.

Suggested Citation

  • Dascher, Kristof, 2013. "Foreign Direct Investment into Open and Closed Cities," MPRA Paper 49197, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:49197
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    References listed on IDEAS

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    1. Javorcik, Beata S. & Özden, Çaglar & Spatareanu, Mariana & Neagu, Cristina, 2011. "Migrant networks and foreign direct investment," Journal of Development Economics, Elsevier, vol. 94(2), pages 231-241, March.
    2. Fujita,Masahisa, 1991. "Urban Economic Theory," Cambridge Books, Cambridge University Press, number 9780521396455.
    3. Bruce A. Blonigen & Jeremy Piger, 2014. "Determinants of foreign direct investment," Canadian Journal of Economics, Canadian Economics Association, vol. 47(3), pages 775-812, August.
    4. Shigemi Yabuuchi, 1999. "Foreign direct investment, urban unemployment and welfare," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 8(4), pages 359-371.
    5. Yoshitsugu Kanemoto, 1980. "A Note on the Measurement of Benefits of Public Inputs," Canadian Journal of Economics, Canadian Economics Association, vol. 13(1), pages 135-142, February.
    6. Kugler, Maurice & Rapoport, Hillel, 2005. "Skilled emigration, business networks and foreign direct investment," Discussion Paper Series In Economics And Econometrics 503, Economics Division, School of Social Sciences, University of Southampton.
    7. Dierk Herzer, 2012. "How Does Foreign Direct Investment Really Affect Developing Countries' Growth?," Review of International Economics, Wiley Blackwell, vol. 20(2), pages 396-414, May.
    8. John M. Hartwick, 1993. "Capitalization of Productivity Growth in Urban Land Rent," Working Papers 875, Queen's University, Department of Economics.
    9. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-848, December.
    10. Fung, Michael Ka-yiu & Zeng, Jinli & Zhu, Lijing, 1999. "Foreign Capital, Urban Unemployment, and Economic Growth," Review of International Economics, Wiley Blackwell, vol. 7(4), pages 651-664, November.
    11. Barry, Frank, 2002. "Foreign Direct Investment, Infrastructure and the Welfare Effects of Labour Migration," Manchester School, University of Manchester, vol. 70(3), pages 364-379, June.
    12. J. Peter Neary, 1995. "Factor Mobility and International Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 4-23, November.
    13. Guimaraes, Paulo & Figueiredo, Octavio & Woodward, Douglas, 2000. "Agglomeration and the Location of Foreign Direct Investment in Portugal," Journal of Urban Economics, Elsevier, vol. 47(1), pages 115-135, January.
    14. Bartel, Ann P, 1989. "Where Do the New U.S. Immigrants Live?," Journal of Labor Economics, University of Chicago Press, vol. 7(4), pages 371-391, October.
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    More about this item

    Keywords

    Foreign Direct Investment; Open City; Immigration; Urban Rent;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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