Industrial Targeting and Non‐shiftable Capital in the Harris–Todaro Model*

Jai‐Young Choi and Eden Yu

Review of International Economics, 2006, vol. 14, issue 5, 910-921

Abstract: This paper shows that, in the 2 × 3 sector‐specific capital Harris–Todaro model, capital growth owing to either domestic or foreign investment always enhances the welfare of the country (i.e. non‐immiserizing), and this result of non‐immiserizing foreign investment holds regardless of initial holdings of foreign capital; the policy of industrial targeting via capital investment is more effective vis‐à‐vis the (neoclassical) 2 × 2 mobile‐capital Harris–Todaro model or the Heckscher–Ohlin model; in contrast to the recent generalization by Marjit and Beladi (2003), capital growth cannot be immiserizing in the present model, even if it destroys the “envelope theorem.”

Date: 2006
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