Welfare gains from capital inflows under import quotas

Factor Growth and Foreign Investment under Product Market Imperfection in the Harris–Todaro Economy

“…Furthermore, it is shown that in the presence of the monopolistic manufacturing sector protected by an import quota, an inflow of foreign capital into a small country may be immiserizing. This result contradicts the traditional wisdom that foreign capital inflow in the presence of a given import quota in the HO model is always welfare improving, demonstrated by Dei ().…”

Urban Employment and Foreign Investment: The Quota Case

“…Our result is different from Khan (1982b: Proposition 4.2), where he has shown that capital accumulation can never be immiserizing in the short run when both the urban wage and the domestic goods prices are fixed. Therefore, we find, unlike Dei (1985) and Tanigaki (1988), that an additional foreign investment in the presence of a quota may paradoxically reduce the welfare of a developing country plagued with substantial urban unemplbyment in the short run. Substituting (25) into (29) Hence, a sufficient condition for foreign capital inflows to be immiserizing is: a m p < [(e + s)L,Y,(diV&) -(pZ/Q) (&X/dp)(dWaz)]/[LXYL(p/Q)(dW&)].…”

“…Srinivasan (1983) showed that an introduction of foreign capital inflows has an ambiguous effect on welfare. In contrast, Dei (1985) showed that additional foreign investment in the presence of an import quota always improves welfare. Recently, Tanigaki (1988) found that additional foreign investment in the nontraded-goods sector always increases welfare, assuming normality in consumption.…”

On Investment Measures and Trade

“…Nevertheless, the welfare-improving effect of export requirements does not prevail in the case of quota protection. As shown by Dei (1985), the welfare impact of the inflow of foreign capital under quotas is dramatically different from that under tariffs. 6 Foreign capital inflows improves welfare via a reduction in the rate of return to foreign capital.…”