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Factor Growth and Foreign Investment under Product Market Imperfection in the Harris–Todaro Economy
Author(s) -
Yu Eden S. H.,
Choi JaiYoung
Publication year - 2013
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12042
Subject(s) - economics , imperfect competition , production (economics) , capital (architecture) , factor price , factor market , foreign direct investment , investment (military) , factors of production , domestic market , exchange rate , product market , earnings , imperfect , monetary economics , international economics , market economy , international trade , macroeconomics , microeconomics , archaeology , incentive , politics , political science , law , history , linguistics , philosophy , accounting
This paper examines the ramifications of an imperfect product market, with reference to factor growth and foreign investment, for a small Harris–Todaro economy with the agricultural (manufacturing) sector under perfect competition (monopoly protected by an import quota). It is shown that factor growth entails multiple component effects of conflicting signs (i.e. the primary growth effect, the distortionary production effect, and production and employment effects induced by changes in the domestic commodity prices), and, hence, can be welfare‐reducing. Similarly, an inflow of foreign capital can be immiserizing when the foreign capital earnings are repatriated at the domestic rental rate.