Hostname: page-component-586b7cd67f-dsjbd Total loading time: 0 Render date: 2024-11-26T10:16:07.014Z Has data issue: false hasContentIssue false
  • English
  • Français

INDUSTRIAL TRANSFORMATION WITH HETEROGENEOUS LABOR AND FOREIGN EXPERTS

Published online by Cambridge University Press:  30 May 2018

King Yoong Lim
King Yoong Lim*
Affiliation:
Nottingham Trent University
*
Address correspondence to: King Yoong Lim, Economics Division, Nottingham Business School, Nottingham Trent University, Newton Building, Burton Street, Nottingham NG1 4BU, UK; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper develops an endogenous growth model with industrial transformation and a stylized foreign expert-based internalization advantage framework to determine the composition of heterogeneous foreign multinationals in a developing host economy. A key feature of the model is the introduction of a dichotomous relationship between domestic and foreign firms, where the latter perceives heterogeneity among the productivity of domestic workers. This results in the skills acquisition decision and foreign subsidiaries' operational mode choice to be determined along the same ability distribution of the host economy. This subsequently determines the shares of the different types of multinationals in a host economy. Parameterized for Malaysia, policy experiments are conducted. A balanced investment liberalization measure for all foreign firms is found to outperform measure targeting only selected types, though there is a threshold doing-business cost value below which such a standalone Foreign Direct Investment (FDI)-promoting policy does not generate positive growth effect. This then calls for composite program that maximizes the policy complementarities between human capital and FDI-promoting policies.

Keywords

Foreign ExpertsHuman CapitalIndustrial TransformationInnovation
Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 8 , December 2019 , pp. 3225 - 3266
Copyright
Copyright © Cambridge University Press 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

I thank Pierre-Richard Agénor for his dedicated supervision and helpful feedback. I am also grateful to Christoph Himmels, Kyriakos Neanidis, Timo Trimborn, the editors, and reviewers for their invaluable feedback, which have contributed to the improvement of this article. I bear sole responsibility for the views expressed in this paper. Appendices are made available upon request.

References

REFERENCES

Agénor, Pierre-Richard and Alpaslan, Baris (2014) Infrastructure and Industrial Development with Endogenous Skill Acquisition. Centre for Growth and Business Cycle Research discussion paper 195, University of Manchester.Google Scholar
Agénor, Pierre-Richard and Canuto, Otaviano (2012) Middle-Income Growth Traps. Policy Research working paper 6210, World Bank.Google Scholar
Agénor, Pierre-Richard and Dinh, Hinh T. (2013) Public Policy and Industrial Transformation in the Process of Development. Policy Research working paper 6405, World Bank.Google Scholar
Agénor, Pierre-Richard and Montiel, Peter (2008) Development Macroeconomics. New Jersey: Princeton University Press.Google Scholar
Allanson, Paul and Montagna, Catia (2005) Multiproduct firms and market structure: An explorative application to the product life cycle. International Journal of Industrial Organization 23, 587–597.Google Scholar
Amsden, Alice (2001) The Rise of “The Rest'': Challenges to the West from Late-Industrializing Economies. Oxford: Oxford University Press.Google Scholar
Ang, James B. and Madsen, Jakob B. (2015) What drives ideas production across the world. Macroeconomic Dynamics 19, 79–115.Google Scholar
Athukorala, Prema-Chandra (2005) Product fragmentation and trade patterns in East Asia. Asian Economic Papers 4, 1–27.Google Scholar
Athukorala, Prema-Chandra and Hill, Hal (2010) Asian trade: Long-term patterns and key policy issues. Asian-Pacific Economic Literature 24, 52–82.Google Scholar
Aurangzeb, Zeb and Stengos, Thanasis (2014) The role of foreign direct investment in a dualistic growth framework: A smooth coefficient semi-parametric approach. Borsa Istanbul Review 14–3, 133–144.Google Scholar
Blomström, Magnus (2002) The economics of international investment incentives. In Christiansen, H. (ed.), International Investment Perspectives, pp. 165–183. Paris: OECD Publications.Google Scholar
Blomström, Magnus and Kokko, Ari (2003) Human Capital and Inward FDI. Working paper 167, European Institute of Japanese Studies.Google Scholar
Borensztein, E., De Gregorio, Jose, and Jong-Wha, Lee (1998) How does foreign direct investment affect economic growth? Journal of International Economics 45, 115–135.Google Scholar
Braconier, Henrik, Norbäck, Pehr-Johan, and Urban, Dieter (2005) Multinational enterprises and wage costs: Vertical FDI revisited. Journal of International Economics 67, 446–470.Google Scholar
Brainard, S. Lael (1997) An empirical assessment of the proximity-concentration trade-off between multinational sales and trade. American Economic Review 87, 520–544.Google Scholar
Brambilla, Irene, Hale, Galina, and Long, Cheryl (2009) Foreign direct investment and the incentives to innovate and imitate. Scandinavian Journal of Economics 111, 835–861.Google Scholar
D'Costa, Anthony (2002) Software outsourcing and development policy implications: An indian perspective. International Journal of Technology Management 24, 705–723.Google Scholar
Djankov, Simeon and Hoekman, Bernard (2000) Foreign investment and productivity growth in Czech enterprises. World Bank Economic Review 14, 49–64.Google Scholar
Dinopoulos, Elias and Segerstrom, Paul S. (1999) A Schumpeterian model of protection and relative wages. American Economic Review 89, 450–472.Google Scholar
Dunning, John H. (1977) Trade, location of economic activity and the multinational enterprise: A search for an eclectic approach. In Ohlin, B., et al. (ed.), The International Allocation of Economic Activity, pp. 395–418. London: Holmes and Meier.Google Scholar
Eicher, Theo and García-Peñalosa, Cecilia (2001) Inequality and growth: The dual role of human capital in development. Journal of Development Economics 66, 173–197.Google Scholar
Faeth, Isabel (2009) Determinants of foreign direct investment–-a tale of nine theoretical models. Journal of Economic Surveys 23, 165–196.Google Scholar
Feder, Gershon (1983) On exports and economic growth. Journal of Development Economics 12, 59–73.Google Scholar
Felipe, Jesus, Abdon, Arnelyn, and Kumar, Utsav (2012) Tracking the Middle-Income Trap: What Is It, Who Is in It, and Why? Working paper 715, Levy Economics Institute.Google Scholar
Funke, Michael and Strulik, Holger (2000) On endogenous growth with physical capital, human capital, and product variety. European Economic Review 44, 491–515.Google Scholar
Gander, James, Reynolds, Steve, and Fowles, Richard (2009) FDI Flow Volatility and ASEAN Members: An Exploratory Approach. Economics Working Paper 6, University of Utah.Google Scholar
Gersbach, Hans and Schmutzler, Armin (2011) Foreign direct investment and R&D-offshoring. Oxford Economic Papers 63, 134–157.Google Scholar
Glass, Amy (2010) Imitation as a Stepping Stone to Innovation. OSU Working Paper No. 99-11, Ohio State University.Google Scholar
Haaland, Jan I. and Wooton, Ian (2001) Multinational Firms: Easy Come, Easy Go? Discussion Paper 2660, CEPR.Google Scholar
Horstmann, Ignatius J. and Markusen, James R. (1987) Strategic investments and the development of multinationals. International Economic Review 28, 109–121.Google Scholar
Horstmann, Ignatius J. and Markusen, James R. (1996) Exploring new markets: Direct investment, contractual relations and the multinational enterprise. International Economic Review 37, 1–19.Google Scholar
Iacopetta, Maurizio (2011) Formal education and public knowledge. Journal of Economic Dynamics and Control 35, 676–693.Google Scholar
Jones, Charles (2005) Growth and ideas. In Aghion, P. and Durlauf, S. (eds.), Handbook of Economic Growth, pp. 1063–1111. Amsterdam: Elsevier.qquadGoogle Scholar
Kam, Andrew (2013) International production networks and host country productivity: Evidence from Malaysia. Asian-Pacific Economic Literature 27, 127–146.Google Scholar
Kharas, Homi, Zeufack, Albert, and Majeed, Hamdan (2010) Cities, People & the Economy: A Study on Positioning Penang. Kuala Lumpur: Khazanah Nasional.Google Scholar
Kottaridi, Constantina and Stengos, Thanasis (2010) Foreign direct investment, human capital and non-linearities in economic growth. Journal of Macroeconomics 32, 858–871.Google Scholar
Lim, K. Y. (2015) Is Innovation Shortfall in Malaysia a Structural Issue? Evidence from PICS on FDI, Ownership Mode, and Investment Climate. unpublished, University of Manchester.Google Scholar
Markusen, James R. (1995) The boundaries of multinational enterprises and the theory of international trade. Journal of Economic Perspectives 9, 169–189.Google Scholar
Markusen, James R. (1998) Multinational firms, location and trade. World Economy 21, 733–756.Google Scholar
Markusen, James R. and Maskus, Keith E. (2002) Discriminating among alternative theories of the multinational enterprise. Review of International Economics 10, 694–707.Google Scholar
Markusen, James R. and Trofimenko, Natalia (2009) Teaching locals new tricks: Foreign experts as a channel of knowledge transfers. Journal of Development Economics 88, 120–131.Google Scholar
Markusen, James R. and Venables, Anthony J. (1999) Foreign direct investment as a catalyst for industrial development. European Economic Review 43, 335–356.Google Scholar
Melitz, Marc J. (2003) The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica 71, 1695–1725.Google Scholar
Nelson, Richard R. and Pack, Howard (1999) The Asian miracle and modern growth Theory. Economic Journal 109, 416–436.Google Scholar
Olney, William W. (2013) A race to the bottom? Employment protection and foreign direct investment. Journal of International Economics 91, 191–203.Google Scholar
Romer, Paul M. (1990) Endogenous technological change. Journal of Political Economy 98, S71–102.Google Scholar
Saggi, Kamal (2002) Trade, foreign direct investment, and international technology transfer: A survey. World Bank Research Observer 17, 191–235.Google Scholar
Sander, Frederico Gil and Hanusch, Marek (2012) Malaysia Economic Monitor: Modern Jobs. Washington, DC: World Bank.Google Scholar
Sequeira, Tiago (2011) R&D spillovers in an endogenous growth model with physical capital, human capital, and varieties. Macroeconomic Dynamics 15, 223–239.Google Scholar
Trimborn, Timo, Koch, Karl-J., and Steger, Thomas (2008) Multidimensional transitional dynamics: A simple numerical procedure. Macroeconomic Dynamics 12, 301–319.Google Scholar
Yusuf, Shahid and Nabeshima, Kaoru (2009) Tiger Economies Under Threat: A Comparative Analysis of Malaysia's Industrial Prospects. Washington, DC: World Bank.Google Scholar
Zeufack, Albert and Lim, King Yoong (2013) Can Malaysia Achieve Innovation-Led Growth? Kuala Lumpur: Khazanah Nasional.Google Scholar
Supplementary material: File

Lim supplementary material

Lim supplementary material 1

Download Lim supplementary material(File)
File 37.5 KB