Measurement Of Gains And Losses From Foreign Investment

The main body of theory concerned with the gains and losses incurred because of international investment has been carried out in the context of a two factor-two country-good model in which labour is immobile internationally while some of the capital goods of the home country are invested abroad. However, when we examine the occasions where significant amounts of foreign investments have taken place we find that they are often accompanied by an immigration of labour to the country which is receiving this foreign owned capital. In this paper a three country model is developed containing, a home country H, a foreign country F, and the group of countries U in which labour receives a substantially lower real wage than H or F. The wage differential between U and either H or F is large enough so the latter countries can get unlimited amounts of labour through immigration from U at their existing wage rate, if their immigration authorities allow it.