Foreign direct investment and international trade in a continuum Ricardian trade model

Kwok Hon, Leonard CHENG, Larry D. QIU, Guofu TAN

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

15 Citations (Scopus)

Abstract

We develop a continuum Ricardian trade model to capture both North–South trade and technology transfer via foreign direct investment (FDI) by multinational enterprises (MNEs). We show that there is a unique range of products produced in the South by MNEs. In the case of an infinitely elastic supply of expatriates, if the ability of Southern workers in absorbing Northern technology increases, then (a) the range of MNE production increases, (b) Northern workers's welfare and Southern workers' welfare change in opposite directions, and (c) the world aggregate welfare increases under certain conditions. We explore issues such as North–South wage gaps, FDI policies and the product cycle. We also derive results under a general supply of expatriates.
Original languageEnglish
Pages (from-to)477-501
Number of pages25
JournalJournal of Development Economics
Volume77
Issue number2
DOIs
Publication statusPublished - 1 Aug 2005
Externally publishedYes

Fingerprint

multinational enterprise
foreign direct investment
international trade
direct investment
world trade
foreign investment
welfare worker
wage gap
supply
investment policy
technology transfer
wage
welfare
worker
ability
Multinational enterprises
Foreign direct investment
International trade
product
Expatriates

Keywords

  • Foreign direct investment
  • Product cycle
  • Ricardian model
  • Technology transfer

Cite this

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Foreign direct investment and international trade in a continuum Ricardian trade model. / CHENG, Kwok Hon, Leonard; QIU, Larry D.; TAN, Guofu.

In: Journal of Development Economics, Vol. 77, No. 2, 01.08.2005, p. 477-501.

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

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AU - CHENG, Kwok Hon, Leonard

AU - QIU, Larry D.

AU - TAN, Guofu

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Y1 - 2005/8/1

N2 - We develop a continuum Ricardian trade model to capture both North–South trade and technology transfer via foreign direct investment (FDI) by multinational enterprises (MNEs). We show that there is a unique range of products produced in the South by MNEs. In the case of an infinitely elastic supply of expatriates, if the ability of Southern workers in absorbing Northern technology increases, then (a) the range of MNE production increases, (b) Northern workers's welfare and Southern workers' welfare change in opposite directions, and (c) the world aggregate welfare increases under certain conditions. We explore issues such as North–South wage gaps, FDI policies and the product cycle. We also derive results under a general supply of expatriates.

AB - We develop a continuum Ricardian trade model to capture both North–South trade and technology transfer via foreign direct investment (FDI) by multinational enterprises (MNEs). We show that there is a unique range of products produced in the South by MNEs. In the case of an infinitely elastic supply of expatriates, if the ability of Southern workers in absorbing Northern technology increases, then (a) the range of MNE production increases, (b) Northern workers's welfare and Southern workers' welfare change in opposite directions, and (c) the world aggregate welfare increases under certain conditions. We explore issues such as North–South wage gaps, FDI policies and the product cycle. We also derive results under a general supply of expatriates.

KW - Foreign direct investment

KW - Product cycle

KW - Ricardian model

KW - Technology transfer

UR - http://commons.ln.edu.hk/sw_master/1519

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