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Is Direct FDI in Healthcare Desirable in a Developing Economy?

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Listed:
  • Chaudhuri, Sarbajit
  • Mukhopadhyay, Ujjaini

Abstract

We develop a three-sector general equilibrium model and attempt to examine the impact of FDI in healthcare sector on the welfare and human capital stock of the economy. The greater the size of the healthcare sector the higher and better would be the medical facilities available to each member of the population. Better medical facilities must produce positive effects on workers’ general health and productivity. The greater the size of the healthcare sector the higher is the efficiency of labour. There are two types of capital: capital of type K and capital of type N. While capital of type K is used in production of all the sectors of the economy, capital of type N is specific to the healthcare sector. Our analysis finds that an FDI of capital of type N although raises the human capital formation may lower social welfare. On the contrary, an inflow of foreign capital of type K is likely to be welfare-improving. Although these effects crucially hinge on different structural factors e.g. the degree of labour market imperfection, trade-related and technological factors these can at least question the desirability of allowing the entry of foreign capital in the healthcare sector directly.

Suggested Citation

  • Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2012. "Is Direct FDI in Healthcare Desirable in a Developing Economy?," MPRA Paper 41007, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:41007
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    References listed on IDEAS

    as
    1. Rupa Chanda, 2008. "Trade in Health Services," Working Papers id:1758, eSocialSciences.
    2. Office of Health Economics, 2007. "The Economics of Health Care," For School 001490, Office of Health Economics.
    3. J. Outreville, 2007. "Foreign direct investment in the health care sector and most-favoured locations in developing countries," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 8(4), pages 305-312, December.
    4. Smith, Richard D, 2004. "Foreign direct investment and trade in health services: A review of the literature," Social Science & Medicine, Elsevier, vol. 59(11), pages 2313-2323, December.
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    More about this item

    Keywords

    FDI; healthcare; developing economy; social welfare; human capital; general equilibrium;
    All these keywords.

    JEL classification:

    • P36 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • F19 - International Economics - - Trade - - - Other

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