Asymmetric Effects of Endowment Changes on Foreign Investment

Abstract

This paper explores the asymmetric impact of factor endowment changes on foreign investment source and host countries using a Ricardo-Wilson (multifactor, continuum-of-goods) model where there is a technological basis for trade even if the countries are equivalent in all respects except for capital endowments. It is discovered that host-country capital growth must be immiserizing in the source country provided that the two countries are initially alike in all respects except for capital endowments. While a stringent single-good MacDougall-Kemp restriction suffices to guarantee that source-country labor growth is immiserizing in the host country, initial equivalence between countries is insufficient.