FDI and unemployment, a growth perspective

Arbeitspapier

North-South foreign direct investment (FDI) is frequently viewed as a process in which jobs relocate from the North to the South. I build a growth model with two asymmetric trading economies, the North where firms innovate and the South where Northern firms invest to take advantage of lower wages. Contrary to expectation, I find that lower FDI costs increase unemployment both in the North and in the South. There are two effects of FDI on unemployment, a direct positive one which contributes to the turnover of firms parallel to innovation. The indirect effect appears through innovation and growth: more FDI means higher innovation, this intensifies firm turnover and increases the unemployment rates in both countries even further. I solve the model analytically without trade costs and imitation of products in the South. For the version with trade costs and imitation I offer a numerical solution in which I also look at the effect of FDI on welfare and find a positive relation. In addition to FDI, I explore how intellectual property (IP) rights protection affects unemployment and welfare. Both are higher in a steady state with stricter IP protection.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IAB-Discussion Paper ; No. 11/2018

Classification and Topics

• Classification: Wirtschaft ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Trade and Labor Market Interactions ; Multinational Firms; International Business ; Economic Growth of Open Economies ; Innovation and Invention: Processes and Incentives ; Intellectual Property and Intellectual Capital
• Subject: Foreign direct investment ; unemployment ; creative destruction ; North-South trade ; intellectual property rights

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Stepanok, Ignat
• Event: Veröffentlichung
• (who): Institut für Arbeitsmarkt- und Berufsforschung (IAB)
• (where): Nürnberg
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/182151
• Last update: 10.03.2025, 11:41 AM CET