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Cross-Country Externalities of Trade and FDI Liberalization

Author

Listed:
  • Qing Liu

    (School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China)

  • Larry D. Qiu

    (School of Economics and Finance, The University of Hong Kong, Hong Kong, China)

Abstract

We develop a three-country heterogeneous-firm model and show that FDI liberalization in one foreign country (F1) results in the following: (i) some firms from the home country switch from export to FDI in F1; (ii) skilled labor¡¯s wage rate drops in the home country; (iii) wage inequality between the skilled and unskilled labor decreases; and (iv) some firms from the home country switch from FDI to export to another foreign country (F2). The effects from trade liberalization are just the opposite, but the effects from education improvement are qualitatively the same as FDI liberalization. The cross-country externalities work through the domestic labor market.

Suggested Citation

  • Qing Liu & Larry D. Qiu, 2013. "Cross-Country Externalities of Trade and FDI Liberalization," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 8(1), pages 19-49, March.
    • Handle: RePEc:fec:journl:v:8:y:2013:i:1:p:19-49
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0002-0
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    More about this item

    Keywords

    export; FDI; firm heterogeneity; cross-country externalities; wage inequality; skill training; contractual friction;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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