Jürgen Antony
Capital/Labor Substitution, Capital Deepening, and
FDI
Abstract:
Empirical studies show that the elasticity of substitution between
capital and labor is larger than one in developed countries but smaller
in developing countries. This paper develops a production function
which allows for this structure in the elasticity of substitution. The
case of a falling real interest rate and capital deepening in the
developed countries in the presence of FDI flows from the developed to
the developing country is analyzed. It is shown that this structure in
the elasticity of substitution can be responsible for a U-shaped
relationship between the capital intensity of the developed country and
the relative capital intensity of the developing country. This carries
over to an inverted U-shaped relationship between the capital intensity
of the developed country and FDI profitability.
JEL: E23,
F21, O11
Paper:
Paper available as pdf-file.
Beitrag Nr. 295, Volkswirtschaftliche Diskussionsreihe, Institut
für
Volkswirtschaftslehre der Universität Augsburg
Contact:
Jürgen
Antony
email: juergen.antony@wiwi.uni-augsburg.de
v.
K., 17.10.2007