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- Title
Does pleasing export-oriented foreign investors help your balance of payments? A general equilibrium analysis.
- Authors
Razmi, Arsian
- Abstract
Many developing Countries have adopted investor-friendly policies in order to attract export-oriented foreign direct investment (FDI). The effects of these policies on the external accounts have largely been ignored. We endogenize FDI inflows in a structuralist general equilibrium framework to contribute towards filling this gap. Our economy consists of: (i) a non-tradable goods sector and (ii) an export processing zone (EPZ) that hosts transnational corporations. We find that most of the commonly pursued policies considered are likely to have a negative impact on the balance of payments due to: (i) income re-distribution towards groups more likely to spend on imported goods, (ii) higher capacity utilization in the (more import-intensive) EPZ, and (iii) the excess supply of non-tradables created, which in turn has an adverse valuation effect via a real internal depreciation. Strong backward linkages, however, may under certain conditions help offset the adverse impact through a favorable valuation effect.
- Subjects
FOREIGN investments; EXPORTS; EXPORT marketing; BALANCE of payments; ECONOMIC equilibrium; EXPORT processing zones; ECONOMIC policy; NONTRADED goods; ECONOMIC development
- Publication
Oxford Economic Papers, 2009, Vol 61, Issue 1, p128
- ISSN
0030-7653
- Publication type
Article
- DOI
10.1093/oep/gpn012