FDI with Reverse Imports and Hollowing Out
نویسنده
چکیده
This paper develops a model of FDI with reverse imports examining the impact of FDI on the home economy through the “hollowing out” effect on the domestic employment. A foreign wage threshold exists. If the foreign wage is lower than the threshold, the home firm chooses FDI. The threshold depends on a FDI fixed cost and a demand parameter. A welfare analysis shows that another foreign wage threshold exists. If the foreign wage is lower than the threshold, FDI makes the welfare of the home country higher. This paper derives the conditions about which threshold is higher and that as an application, FDI cannot be deterred if the home firm prefers it. JEL Classification: F12, F16, F23.
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