Foreign Direct Investments in Services and the Domestic Market for Expertise / James R. Markusen, Thomas F. Rutherford, David Tarr.

Format:

Book

Author/Creator:

Markusen, James R.

Contributor:

National Bureau of Economic Research.

Rutherford, Thomas F.

Tarr, David.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7700.

NBER working paper series no. w7700

Language:

English

Subjects (All):

Service industries.

Investments, Foreign.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2000.

Cambridge, Massachusetts : National Bureau of Economic Research, 2000.

Summary:

Producer services such as managerial and engineering consulting can provide domestic firms with the substantial benefits of specialized knowledge that would be costly in terms of both time and money for domestic firms to develop on their own. These intermediate services are often non-traded, or costly to trade, and are best transferred through foreign direct investment. This has important implications for public policy since policies that impact on foreign direct investment are often quite different from those that impact on trade in goods. We develop a model of these services in this paper. Results show that: (1) while imported services are partial-equilibrium substitutes for domestic skilled labor, they may be general-equilibrium complements, (2) imported services lead to differential productivity effects in final goods production so that, for example, the pattern of trade in goods can reverse when FDI is permitted, and (3) the optimal tax on FDI (which we do not advocate as a practical matter) is negative.

Notes:

Print version record

May 2000.