In a two sector mobile capital Harris-Todaro model, such as Corden and Findlay (1975), an inflow of foreign capital in the presence of protectionist policy is welfare deteriorating as well as unemployment accentuating. But, the developing countries have chosen liberalized investment and trade policies as their development strategies and have been able to attract a considerable amount of foreign capital during the last two decades. A relevant question is why these countries are yearning for foreign capital given its detrimental effects as predicted by the conventional theoretical literature on trade and development. This paper makes an attempt to address the above issue in terms of a three sector Harris-Todaro model with agricultural dualism and a non- traded final commodity. In the given setup, an inflow of foreign capital is likely to improve welfare and does not necessarily worsen the problem of unemployment. The paper may also be useful to explain as to why many of the developing economies have experienced ‘jobless growth’ in the liberalized regime.
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Paper provided by EconWPA in its series International Trade with number
0510010.
Find related papers by JEL classification: F2 - International Economics - - International Factor Movements and International Business F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
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Batra, Raveendra N & Naqvi, Nadeem, 1987.
"Urban Unemployment and the Gains from Trade,"
Economica,
London School of Economics and Political Science, vol. 54(215), pages 381-95, August.
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