Cross-country externalities of trade and FDI liberalization

Qing LIU, Larry D. QIU

Research output: Journal PublicationsJournal Article (refereed)peer-review

Abstract

We develop a three-country heterogeneous-firm model and show that FDI liberalization in one foreign country (F1) results in the following: (i) some firms from the home country switch from export to FDI in F1; (ii) skilled labor¡¯s wage rate drops in the home country; (iii) wage inequality between the skilled and unskilled labor decreases; and (iv) some firms from the home country switch from FDI to export to another foreign country (F2). The effects from trade liberalization are just the opposite, but the effects from education improvement are qualitatively the same as FDI liberalization. The cross-country externalities work through the domestic labor market.
Original languageEnglish
Pages (from-to)19-49
Number of pages31
JournalFrontiers of Economics in China
Volume8
Issue number1
Early online date5 Mar 2013
DOIs
Publication statusPublished - 2013
Externally publishedYes

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