The welfare effects of FDI: A quantitative analysis

Foreign direct investment (FDI) can increase productivity and wages. However, it is also often accompanied by primary income deficits as foreign-owned firms repatriate their profits. The welfare effects of FDI are thus ambiguous. A particularly illustrative example this phenomenon the Visegrád 4 (V4) countries (Czech Republic, Hungary, Poland, Slovakia). This paper investigates whether be beneficial in presence profit repatriation using a general equilibrium model calibrated to V4 economies. Counterfactual simulations suggest that benefits outweigh costs for these countries. On average, 1% share foreign associated with 0.17% welfare. incentivising reinvest more profits domestically is, ceteris paribus, welfare-improving. 10-percentage-point rate 1.06% gain on average.