Production patterns of multinational enterprises: the knowledge-capital model revisited

Kazuhiko Oyamada

No 674, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: To prepare an answer to the question of how a developing country can attract foreign direct investment (FDI), this paper explored the factors and policies that may help bring FDI into a developing country by utilizing an extended version of the knowledge-capital model. With a special focus on the effects of a free trade agreement (FTA) or an economic partnership agreement (EPA) between a pair of market and non-market countries, simulations with the model revealed the following: (1) although FTA/EPA generally tends to increase FDI to a developing country, the possibility of improving welfare through increased demand for skilled and unskilled labor decreases as the size of the country grows; (2) a developing country may suffer severe welfare losses through FTA/EPA if the availability of skilled labor is extremely limited; and (3) a developing country can enhance welfare gains from a FTA, and it is even possible to recover the welfare effects from negative to positive, by making the arrangement an EPA.

Keywords: Developing Countries; Foreign investments; International business enterprises; International agreements; International trade; Foreign direct investment; Multinational enterprise; Export platform; Complex integration; Free trade agreement; Economic partnership agreement (search for similar items in EconPapers)
JEL-codes: F11 F12 F15 F23 (search for similar items in EconPapers)
Date: 2017-06
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Published in IDE Discussion Paper = IDE Discussion Paper, No. 674. 2017-06

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