Foreign direct investment and international trade in a continuum Ricardian trade model
Document Type
Journal article
Source Publication
Journal of Development Economics
Publication Date
8-1-2005
Volume
77
Issue
2
First Page
477
Last Page
501
Publisher
Elsevier BV
Keywords
Technology transfer, Foreign direct investment, Ricardian model, Product cycle
Abstract
We develop a continuum Ricardian trade model to capture both North–South trade and technology transfer via foreign direct investment (FDI) by multinational enterprises (MNEs). We show that there is a unique range of products produced in the South by MNEs. In the case of an infinitely elastic supply of expatriates, if the ability of Southern workers in absorbing Northern technology increases, then (a) the range of MNE production increases, (b) Northern workers's welfare and Southern workers' welfare change in opposite directions, and (c) the world aggregate welfare increases under certain conditions. We explore issues such as North–South wage gaps, FDI policies and the product cycle. We also derive results under a general supply of expatriates.
DOI
10.1016/j.jdeveco.2004.05.007
Print ISSN
03043878
E-ISSN
18726089
Funding Information
This work acknowledge financial support from the Research Grant Council of Hong Kong (HKUST6214/00H) and Social Sciences and Humanities Research Council of Canada.
Publisher Statement
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Cheng, L. K., Qiu, L. D., & Tan, G. (2005). Foreign direct investment and international trade in a continuum Ricardian trade model. Journal of Development Economics, 77(2), 477-501. doi: 10.1016/j.jdeveco.2004.05.007