A welfare analysis of unilateral trade and FDI liberalization

JaeBin Ahn

Canadian Journal of Economics, 2014, vol. 47, issue 3, 758-774

Abstract: This paper uses a heterogeneousfirms model to examine the procompetitive channel through which FDI affects national welfare. The model shows that the country from which FDI originates experiences a welfare gain following liberalization. However, a counterintuitive finding is that the welfare of the host country deteriorates. This is explained by the production relocation process that leads to an increase in the mass of domestic firms in the source country and a decrease in the host country. The model also confirms that unilateral trade liberalization brings a similar result even in the presence of bilateral FDI flows.

JEL-codes: F12 F23 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

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