Sector-specific foreign direct investment, factor market distortions and non-immiserising growth
This paper explores a 3×3 full-employment H-O-S model with tariff-protection in the capital-intensive import-competing sector and inflows of FDI (foreign direct investment) to an export sector (using foreign capital as a specific input) within the ‘foreign enclave’ of a small open developing economy; whereas there are labour market distortion in the domestic organised tariff-protected import-competing sector and capital market distortion in the domestic unorganised sector of this typical economy. I have considered implications of sector-specific foreign capital inflows on national income (or social welfare, crudely however) of the economy under two different scenarios: when entire income from foreign capital is fully repatriated back to the source country; and when supply of FDI is a positive function of net return to foreign capital in the recipient country, coupled with labour-augmenting type technology transfer. It is found that the possibility of non-immiserising growth improves in the presence of labour market distortion in the organised sector while credit market imperfection in the unorganised sector deteriorates it. However in the presence of technology transfer, existence of labour market distortion is no longer a necessary condition for obtaining such result due to foreign capital inflows to the foreign enclave of this small open developing economy. Existence of output-generated increasing returns in the sector within the foreign enclave will not alter our results; while under the second scenario it will enhance the possibility of non-immiserising growth by raising the tax-revenue from foreign capital income in the host country through increasing the rental to foreign capital. These results are counter-intuitive with respect to the existing theoretical results suggesting immiserising growth owing to sector-specific foreign capital inflows using 3×3 or 2×3 full-employment models without any linkages.
|Date of creation:||14 Dec 2013|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hamada, Koichi, 1974. "An economic analysis of the duty-free zone," Journal of International Economics, Elsevier, vol. 4(3), pages 225-241, August.
- Beladi, H. & Marjit, S., 1992.
"Foreign Capital and Protectionism,"
RCER Working Papers
310, University of Rochester - Center for Economic Research (RCER).
- Timothy Besley & Robin Burgess, 2002.
"Can labour regulation hinder economic performance? Evidence from India,"
LSE Research Online Documents on Economics
3779, London School of Economics and Political Science, LSE Library.
- Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 91-134.
- Timothy Besley & Robin Burgess, 2002. "Can Labour Regulation Hinder Economic Performance? Evidence from India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 33, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Besley, Timothy J. & Burgess, Robin, 2002. "Can Labour Regulation Hinder Economic Performance? Evidence from India," CEPR Discussion Papers 3260, C.E.P.R. Discussion Papers.
- Sarbajit Chaudhuri, 2001. "Foreign Capital Inflow, Technology Transfer, and National Income," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(1), pages 49-56.
- Sarbajit Chaudhuri, 2005. "Labour Market Distortion, Technology Transfer And Gainful Effects Of Foreign Capital," Manchester School, University of Manchester, vol. 73(2), pages 214-227, 03.
- Sarbajit Chaudhuri, 2003. "How and how far to liberalize a developing economy with informal sector and factor market distortions," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 12(4), pages 403-428.
- Koizumi, Tetsunori & Kopecky, Kenneth J., 1980. "Foreign direct investment, technology transfer and domestic employment effects," Journal of International Economics, Elsevier, vol. 10(1), pages 1-20, February.
- Ronald Findlay, 1978. "Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple Dynamic Model," The Quarterly Journal of Economics, Oxford University Press, vol. 92(1), pages 1-16.
- Din, Musleh-ud, 1994. "Export processing zones and backward linkages," Journal of Development Economics, Elsevier, vol. 43(2), pages 369-385, April.
- Yabuuchi, Shigemi, 2000. "Export Processing Zones, Backward Linkages, and Variable Returns to Scale," Review of Development Economics, Wiley Blackwell, vol. 4(3), pages 268-78, October.
- Hamilton, Carl & E.O. Svensson, Lars, 1982. "On the welfare effects of a duty-free zone," Journal of International Economics, Elsevier, vol. 13(1-2), pages 45-64, August.
- Koizumi, Tetsunori & Kopecky, Kenneth J., 1977. "Economic growth, capital movements and the international transfer of technical knowledge," Journal of International Economics, Elsevier, vol. 7(1), pages 45-65, February.
- Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2009. "Revisiting the Informal Sector: A General Equilibrium Approach," MPRA Paper 52135, University Library of Munich, Germany.
- Mukherjee, Soumyatanu, 2011.
"Revisiting the Apparent Paradox: Foreign Capital Inflow, Welfare Amelioration and ‘Jobless Growth’ with Agricultural Dualism and Non-traded Intermediate Input,"
33410, University Library of Munich, Germany.
- Mukherjee, Soumyatanu, 2012. "Revisiting the Apparent Paradox: Foreign Capital Inflow, Welfare Amelioration and ‘Jobless Growth’ with Agricultural Dualism and Non-traded Intermediate Input," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 27, pages 123-133.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:52214. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.