Title

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

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

Publisher Statement

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Full-text Version

Publisher’s Version

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