Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/287821 
Authors: 
Year of Publication: 
2022
Citation: 
[Journal:] Review of International Economics [ISSN:] 1467-9396 [Volume:] 31 [Issue:] 2 [Publisher:] Wiley [Place:] Hoboken, NJ [Year:] 2022 [Pages:] 761-783
Publisher: 
Wiley, Hoboken, NJ
Abstract: 
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.
Subjects: 
creative destruction
foreign direct investment
intellectual property rights
North–South trade
unemployment
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article
Document Version: 
Published Version

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