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Foreign capital, Non-Traded Goods and Welfare in a Developing Economy in the presence of Externalities

Sarbajit Chaudhuri ()

MPRA Paper from University Library of Munich, Germany

Abstract: A three-sector, three-factor general equilibrium model is developed for a small open developing economy where an inflow of foreign capital generates externalities in the presence of a non-traded final commodity. There are two types of capital and the efficiency of labour depends positively on the consumption of the non-traded commodity. Effects of inflows of foreign capital on social welfare and human capital formation are examined. The analysis finds that while capital that is used in all the sectors may improve welfare; capital used specifically in the non-traded sector is likely to affect social welfare adversely. These results can at least question the desirability of allowing entry of foreign capital in the non-traded final good sector that emanates externalities.

Keywords: Foreign capital; externality; non-traded good; social welfare; human capital formation; general equilibrium. (search for similar items in EconPapers)
JEL-codes: F21 F6 H2 H23 H5 H53 J4 O1 O17 (search for similar items in EconPapers)
Date: 2013-12-11
New Economics Papers: this item is included in nep-mac and nep-net
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Journal Article: Foreign capital, non-traded goods and welfare in a developing economy in the presence of externalities (2014) Downloads
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