MARKET STRUCTURE,CAPITAL INFLOWS,AND HOME WELFARE |
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| Authors: | Priya Ranjan |
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| Institution: | 1. Senior Staff Economist , Federal Trade Commission.;2. Associate Professor of Economics , International Business at the University of Southern , Mississippi.;3. Associate Professor of Economics , Economics and Finance at the University of Texas , El Paso |
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| Abstract: | The welfare implications of foreign capital inflows in an economy with an imperfectly competitive product market and a capital-intensive import-competing sector are analyzed. If the market structure is exogenous with a fixed number of firms, then a capital inflow improves welfare of the host country. However, if the market structure is endogenous, then a capital inflow tends to be immiserizing because it increases entry and reduces per firm output, thus driving firms up their average cost schedule. In addition, the welfare implications of capital inflows in the presence of trade restrictions are also studied, generating some new insights. |
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