Firm productivity, foreign direct investment and the host-country welfare: trade cost vs. cheap labor

Arijit Mukherjee ()
Additional contact information
Arijit Mukherjee: University of Nottingham

Economics Bulletin, 2008, vol. 6, issue 23, pages 1-8

Abstract: We show that the relationship between higher productivity of the foreign firm and host country welfare depends on the reason for foreign direct investment (FDI). If the reason for FDI is to get the advantage of cheap labor, higher productivity of the foreign firm may reduce host-country welfare. Higher productivity of the foreign firm always increases host-country welfare if the reason for FDI is to save transportation costs but may reduce it if trade costs consist of tariffs. Thus, the present paper complements the recent literature on international trade that explores the effects of foreign firms’ productivities on the incentives for FDI.

Keywords: Cheap labor; Foreign direct investment; Host-country welfare; Trade cost (search for similar items in EconPapers)
JEL-codes: F2 F1 (search for similar items in EconPapers)
Date: 2008-06-11
View list of references

Downloads: (external link)
http://economicsbull ... me6/EB-08F20001A.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this article

More articles in Economics Bulletin from Economics Bulletin
Address: Economics Bulletin, Department of Economics, 414 Calhoun Hall, Vanderbilt University, Nashville TN 37235, USA
Series data maintained by John Conley ().