Temporary Migration and Foreign Direct Investment

Abstract

The question of complementarity or substitutability of FDI and international labour mobility has not yet been answered. The substitutability assumption does not take into consideration the technological spillover of FDI in the host countries. Moreover, migration flows reveal cultural characteristics and labour force properties of their native country which may stimulate bilateral business networks, strengthening the complementarity assumption between capital and labour flows. In this paper we build a continuous time dynamic model where these offsetting forces are at work. We analyze whether, and to what extent, the increase in labour mobility might affect FDI outflows. A numerical simulation is performed showing that a higher income growth rate corresponds to a higher labour mobility. Some policy implications and further research direction are suggested.