Production Patterns of Multinational Enterprises: The Knowledge-Capital Model Revisited

Kazuhiko Oyamada

No 332676, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: To prepare an answer to the question of how a developing country can attract FDI, this paper explored the factors and policies that may help bring FDI into a developing country by utilizing an extended version of the knowledge-capital model. With a special focus on the effects of FTA/EPA between a market country and a developing country, simulations with the model revealed the following: (1) although FTA/EPA generally tends to increase FDI to a developing country, the possibility to improve welfare through increased demand for skilled and unskilled labor becomes lower as the size of the country grows; (2) a developing country may suffer severe welfare losses through FTA/EPA if the availability of skilled labor is extremely limited; (3) because the additional implementation of cost-saving policies to reduce the firm-type/trade-link specific fixed cost tends to depreciate the price of skilled labor by saving its input, a developing country can enhance welfare gains from FTA, and it is even possible to recover the welfare effects from negative to positive, by making the arrangement to be EPA.

Keywords: Agribusiness; Research Methods/Statistical Methods (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:332676

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