- This thesis considers the welfare effects of foreign investment, with the emphasis placed on the comparison between the duty-free zone package and the traditional import-substitution policy. It is concerned with the tax policy toward foreign capital as well as the strategy in selecting industries to open for foreign investment. Since the employment effect is the predominant factor in the determination of welfare change, foreign firms' production characteristics and their implications for employment are also investigated empirically.
The theoretical analysis is undertaken within a sector-specific model. It is found that, under the duty-free zone package, foreign investment is unambiguously welfare-improving provided that foreign firms are unable to take advantage of the price differential between the duty-free zones and the other part of the country in their wage payments. A subsidy to foreign capital is shown to be the second-best policy in this environment. On the other hand, foreign investment under the import-substitution policy has an ambiguous effect on welfare. A tax on foreign capital is shown to be the second-best policy in this environment.
In terms of the choice of industries to open for foreign investment, this thesis shows that the host country's labor endowment and its skill composition are equally important factors to be considered. In general, a country which is endowed with abundant, but unskilled, labor will have a "comparative advantage" in industries which are characterized by labor-intensive and unskilled-labor-intensive productions.
The empirical studies on the technology choices of foreign firms operating under different policy environments find that foreign firms operating in duty-free zones adopt a technology which is more labor-intensive and more unskilled-labor-intensive. The evidence seems to suggest that the duty-free zone package is more favorable to developing countries.
- Dissertation Note:
- Ph.D. The Pennsylvania State University 1983.
- Source: Dissertation Abstracts International, Volume: 45-01, Section: A, page: 2340.
View MARC record | catkey: 13612092