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Production patterns of multinational enterprises: the knowledge-capital model revisited

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  • Oyamada, Kazuhiko

Abstract

To prepare an answer to the question of how a developing country can attract foreign direct investment (FDI), this paper explored the factors and policies that may help bring FDI into a developing country by utilizing an extended version of the knowledge-capital model. With a special focus on the effects of a free trade agreement (FTA) or an economic partnership agreement (EPA) between a pair of market and non-market countries, simulations with the model revealed the following: (1) although FTA/EPA generally tends to increase FDI to a developing country, the possibility of improving welfare through increased demand for skilled and unskilled labor decreases as the size of the country grows; (2) a developing country may suffer severe welfare losses through FTA/EPA if the availability of skilled labor is extremely limited; and (3) a developing country can enhance welfare gains from a FTA, and it is even possible to recover the welfare effects from negative to positive, by making the arrangement an EPA.

Suggested Citation

  • Oyamada, Kazuhiko, 2017. "Production patterns of multinational enterprises: the knowledge-capital model revisited," IDE Discussion Papers 674, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper674
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    References listed on IDEAS

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    Cited by:

    1. Oyamada, Kazuhiko, 2020. "How does BREXIT affect production patterns of multinational enterprises?," Journal of Policy Modeling, Elsevier, vol. 42(1), pages 1-19.
    2. Oyamada, Kazuhiko, 2018. "Export, Horizontal FDI, or Export Platform FDI with Heterogeneous Firms," Conference papers 332957, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

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    More about this item

    Keywords

    Developing Countries; Foreign investments; International business enterprises; International agreements; International trade; Foreign direct investment; Multinational enterprise; Export platform; Complex integration; Free trade agreement; Economic partnership agreement;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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