DP2526 Trade, FDI and Congestion - the Small and very Open Economy

Author(s): Kristof Dascher
Publication Date: August 2000
Keyword(s): Foreign Direct Investment, Open City, Small Open Economy
JEL(s): F11, F23, R23
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2526

Typically, a small and open economy trades goods at given world prices. Here, we present a model of a very open small economy, where capital and labour are internationally mobile, too. When investing into infrastructure, the economy?s government attracts not only mobile capital but mobile labour, too. These capital and labour inflows into the economy reinforce each other. They contribute to rising welfare for land owning indigenous households. But all potential benefits for land renting immigrant households are capitalized into higher land rents. The paper is also an attempt to give an account of the recent economic boom in Ireland.