Two-Way Capital Flows: Cross-Hauling in Models of Foreign Investment

Jones, R.W., Neary, J.P., & Ruane, F.P. (1982). Two-Way Capital Flows: Cross-Hauling in Models of Foreign Investment. IIASA Collaborative Paper. IIASA, Laxenburg, Austria: CP-82-037

Preview

Text CP-82-037.pdf Download (1MB) | Preview

Abstract

Two models are presented of economies which are open to both commodity trade and foreign investment of a sector-specific kind, and which exhibit the phenomenon of "cross-hauling", or reverse flows of internationally mobile capital in two different sectors. In the first model, a single domestic factor is combined with internationally mobile but sector-specific capital in each of two sectors, one of which produces a non-traded good. This appears to be the simplest possible model which permits cross-hauling as an endogenous phenomenon. The second model allows for three kinds of factor mobility, with each sector combining a specific immobile factor with intersectorally mobile but country-specific labor and internationally mobile but sector-specific capital. As well as suggesting explanations for cross-hauling, both models throw light on the "Dutch Disease" phenomenon and also show that trade and international capital flows may be complements rather than substitutes. In addition, the richer model allows for a variety of responses to exogenous disturbances, with the possibility and extent of cross-hauling depending on the substitutability or complementarity relationships between capital, labor and domestic resources.

Actions (login required)

View Item