 Is FTA/EPA effective for a developing country to attract FDI? The knowledge‐capital model revisitedThe World Economy, 2019, vol. 42, issue 3, 759-784 Abstract: To prepare an answer to the question of how a developing country can attract foreign direct investment (FDI), this paper explored the factors and policies that may help bring FDI into a developing country by utilising an extended version of the knowledge‐capital model. With a special focus on the effects of a free trade agreement (FTA) or an economic partnership agreement (EPA) between a pair of market and non‐market countries, simulations with the model revealed the following: (i) although FTA/EPA generally tends to increase FDI to a developing country, the possibility of improving welfare through increased demand for skilled and unskilled labour decreases as the size of the country grows; (ii) a developing country may suffer severe welfare losses through FTA/EPA if the availability of skilled labour is extremely limited; and (iii) a developing country can enhance welfare gains from a FTA, and it is even possible to recover the welfare effects from negative to positive, by making the arrangement an EPA. Date: 2019 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:worlde:v:42:y:2019:i:3:p:759-784 Ordering information: This journal article can be ordered from Access Statistics for this article The World Economy is currently edited by David Greenaway More articles in The World Economy from Wiley Blackwell |
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