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Frontiers of Economics in China

Front Econ Chin    2013, Vol. 8 Issue (1) : 19-49
Cross-Country Externalities of Trade and FDI Liberalization
Qing Liu1(), Larry D. Qiu2()
1. School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China; 2. School of Economics and Finance, The University of Hong Kong, Hong Kong, China
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We develop a three-country heterogeneous-firm model and show that FDI liberalization in one foreign country (F1) results in the following: (i) some firms from the home country switch from export to FDI in F1; (ii) skilled labor’s wage rate drops in the home country; (iii) wage inequality between the skilled and unskilled labor decreases; and (iv) some firms from the home country switch from FDI to export to another foreign country (F2). The effects from trade liberalization are just the opposite, but the effects from education improvement are qualitatively the same as FDI liberalization. The cross-country externalities work through the domestic labor market.

Keywords export      FDI      firm heterogeneity      cross-country externalities      wage inequality      skill training      contractual friction     
Corresponding Author(s): Qing Liu,; Larry D. Qiu,   
Issue Date: 05 March 2013
 Cite this article:   
Larry D. Qiu,Qing Liu. Cross-Country Externalities of Trade and FDI Liberalization[J]. Front Econ Chin, 2013, 8(1): 19-49.
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