FDI and unemployment, a growth perspective

Artikel

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: Journal: Review of International Economics ; ISSN: 1467-9396 ; Volume: 31 ; Year: 2022 ; Issue: 2 ; Pages: 761-783 ; Hoboken, NJ: Wiley

Classification and Topics

• Classification: Wirtschaft
• Subject: creative destruction ; foreign direct investment ; intellectual property rights ; North–South trade ; unemployment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Stepanok, Ignat
• Event: Veröffentlichung
• (who): Wiley
• (where): Hoboken, NJ
• (when): 2022

Further information

• DOI: doi:10.1111/roie.12643
• Last update: 10.03.2025, 11:44 AM CET