Does pleasing export-oriented foreign investors help your balance of payments? A general equilibrium analysis

Arslan Razmi

Oxford Economic Papers, 2009, vol. 61, issue 1, pages 128-149

Abstract: Many developing countries have adopted investor-friendly policies in order to attract export-oriented foreign direct investment (FDI). The effects of these policies on the external accounts have largely been ignored. We endogenize FDI inflows in a structuralist general equilibrium framework to contribute towards filling this gap. Our economy consists of: (i) a non-tradable goods sector and (ii) an export processing zone (EPZ) that hosts transnational corporations. We find that most of the commonly pursued policies considered are likely to have a negative impact on the balance of payments due to: (i) income re-distribution towards groups more likely to spend on imported goods, (ii) higher capacity utilization in the (more import-intensive) EPZ, and (iii) the excess supply of non-tradables created, which in turn has an adverse valuation effect via a real internal depreciation. Strong backward linkages, however, may under certain conditions help offset the adverse impact through a favorable valuation effect. Copyright 2009 , Oxford University Press.

Date: 2009

Downloads: (external link)
http://hdl.handle.net/10.1093/oep/gpn012 (application/pdf)
Access to full text is restricted to subscribers.

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

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:oup:oxecpp:v:61:y:2009:i:1:p:128-149

Ordering information: This journal article can be ordered from
http://www.oup.co.uk/journals

Access Statistics for this article

Oxford Economic Papers is edited by A. Banerjee and James Forder

More articles in Oxford Economic Papers from Oxford University Press
Address: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
Series data maintained by Christopher F. Baum ().