Urban employment and foreign investment: the quota case

Exogenous foreign capital inflows in the presence of an import quota necessarily improve welfare of a competitive, full employment economy; foreign investment, however, may be immiserizing in the presence of a quota for the Harris-Todaro economy incorporating sector-specific unemployment in the short run. In contrast, foreign investment is always welfare-improving in the long run. The condition under which immiserizing can occur is delineated in this paper. The extent of the unemployment effect is crucial in determining if foreign investment is conducive or detrimental to domestic welfare. [F21, O18]. © 1996, Taylor & Francis Group, LLC.