This paper introduces a foreign monopsony within the Ricardo-Viner production model to show that the observed behavior of host country interest groups - labor's opposition and domestic capital's support - towards greater foreign investment need not be inconsistent with the proposition that an inflow of foreign capital raises real wages and lowers the return to domestic capital. It is shown that an increase in foreign investment intensifies the degree of 'monopsonistic exploitation' of labor and produces greater supranormal profits for the foreign monopsony. Moreover, if these profits are distributed to domestic capitalists according to some fixed proportion, this increase in income may offset the decline in their real return.
ASJC Scopus subject areas
- Economics and Econometrics