Cross-Country Externalities of Trade and FDI Liberalization

Qing Liu () and Larry Qiu
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Qing Liu: School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2013, vol. 8, issue 1, 19-49

Abstract: We develop a three-country heterogeneous-firm model and show that FDI liberalization in one foreign country (F1) results in the following: (i) some firms from the home country switch from export to FDI in F1; (ii) skilled labor¡¯s wage rate drops in the home country; (iii) wage inequality between the skilled and unskilled labor decreases; and (iv) some firms from the home country switch from FDI to export to another foreign country (F2). The effects from trade liberalization are just the opposite, but the effects from education improvement are qualitatively the same as FDI liberalization. The cross-country externalities work through the domestic labor market.

Keywords: export; FDI; firm heterogeneity; cross-country externalities; wage inequality; skill training; contractual friction (search for similar items in EconPapers)
JEL-codes: F12 F14 F16 F23 J24 J31 L11 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:fec:journl:v:8:y:2013:i:1:p:19-49

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