عرضه نیروی کار، سرمایه گذاری خارجی و رفاه در حضور زیرساخت های عمومی

Within the context of a small open economy where both foreign investment and the provision of public infrastructure are endogenous, this paper examines the impact of an exogenous increase in labour supply. An increase in labour supply can be attributed to labour inflow. A number of empirical studies have demonstrated the importance of public infrastructure in real economies and both developed and developing countries have attracted significant foreign investment in recent years. This paper shows that, in the case of a diversified equilibrium, variations in labour supply do not affect the wage rate, provision of public infrastructure or welfare. However, an increase in labour supply decreases foreign investment as long as the producers of the private goods derive equal benefits from public infrastructure. In the case of complete specialisation, an increase in labour supply increases the provision of public infrastructure, which leads to an increase in the wage rate and foreign investment. An increase in labour supply increases welfare as long as the provision of public infrastructure involves some fixed cost.

Increased availability of primary factors of production such as capital and labour is an important source of economic growth. Foreign investment has contributed to a significant increase in the supply of capital around the globe.1 While restrictions on capital flows have been substantially reduced, few countries are willing to relax restrictions on the free movement of labour. Spain and Finland have recently indicated their willingness to further relax restrictions on the free flow of labour from members of the European Union (effective from 01 May 2006). At present, some developed countries (for example Australia and New Zealand) are experiencing a shortage of skilled labour. Newly industrialised countries such as Hong Kong and Singapore offer very high salaries to attract foreign workers each year. However, declining birth rates and population ageing are likely to further increase the shortage of skilled labour in all developed countries. One solution to this problem is to increase the number of migrants accepted each year — the Australian government is seriously considering this option. An increase in migration intake increases the supply of labour, which can lead to an increase in government spending on appropriate infrastructure.2 Most existing studies that consider the impact of labour inflow do not explicitly include public infrastructure. A number of empirical studies have suggested that the provision of public infrastructure enhances the productivity of all factors of production. However, none of the available studies appear to have considered the impact of labour inflow on production, foreign investment and welfare in the presence of public infrastructure. Inflow of labour increases the supply of labour, which has implications for resource allocation and welfare. Within the context of a standard two-good and two-factor small open economy model that does not include public infrastructure and where capital mobility is restricted, it has been shown that a small inflow of labour increases the output of labour intensive good at the expense of the capital-intensive good and there is no effect on welfare (see Bhagwati et al., 1998, Rivera-Batiz and Oliva, 2003 and Feenstra, 2004). Din (1996) has utilised a framework where capital is fully mobile across international boundaries but public infrastructure is not explicitly included. Din has shown that inflow of labour increases foreign investment. In a recent study, Gemmell et al. (2008) have shown that increase in foreign investment significantly shifts the size and composition of government spending. A significant proportion of government spending in all real economies is allocated towards the provision of production infrastructure. Ang (2008), Hill (2007), and Appleyard et al. (2007) has argued that infrastructure development promotes foreign investment. A number of available studies have recognised and investigated the role of public infrastructure in real economies. For example, Conrad and Seitz (1994) have shown that the provision of public infrastructure can reduce the cost of production. Rioja (1999) has shown that public infrastructure investment can lead to a sizeable increase in GDP. Demetriades and Mamuneas (2000) have examined the impact of public infrastructure on production and input demand in 12 OECD countries. They have shown that increased spending on public infrastructure is associated with higher levels of production. They also found a positive relationship between the demand for inputs and the supply of public infrastructure. Boisso et al. (2000) have attempted to measure the impact of changes in public infrastructure provision on the slowing down of US productivity. Chandra and Thompson (2000) have examined the role of public infrastructure on various industries. They found that while there was a positive impact on some industries due to a reduction in costs, other industries contracted due to relocation of certain economic activities. Reinikka and Svensson (2002) have shown that poor public capital significantly reduces the complementary private investment. Paul et al. (2004) have examined the impact of public infrastructure on several Canadian manufacturing industries. They suggest that public capital serves as a substitute for private capital and labour in most industries. Salinas-Jimenez (2004) has considered the effect of public infrastructure on productivity and efficiency of the private sector in Spanish regions. Salinas-Jimenez's work supports the view that public infrastructure enhances productivity. Bucovetsky (2005) has argued that public infrastructure investment attracts mobile factors including skilled labour. While the existing empirical studies have demonstrated the usefulness of public infrastructure provision, most theoretical studies that deal with factor mobility do not explicitly include public infrastructure. The provision of public infrastructure leads to external economies of scale to the private sector, which reduces the cost of production. Unlike the existing literature, this paper utilises a stylised model of a small open economy that is characterised by unrestricted international capital mobility and where the supply of public infrastructure is endogenous. The model is used to examine the impact of labour inflow on production, foreign investment, provision of public infrastructure and welfare. Public infrastructure is introduced in the model in the form of a public input which enters private sector production functions. The provision of public infrastructure leads to external economies in the production of final goods which results in multiple-equilibria and hence this paper considers the case of incomplete as well as complete specialisation. The provision of public infrastructure involves fixed as well as variable cost. The paper derives a number of new results. For example, it is shown that in the case of complete specialisation, a small inflow of labour increases welfare, if public infrastructure is productive and its provision involves some fixed cost. The existing literature, which does not explicitly include public infrastructure and where foreign investment is exogenous, suggests that a small inflow of labour has no implication for the welfare of a small open economy. The rest of this paper is structured as follows. A simple model of an economy with foreign investment and public infrastructure is developed in Section 2. A diversified equilibrium is considered in Section 3 where the model is used to examine the impact of increased supply of labour on production of private goods, public infrastructure, foreign investment and welfare. The case of complete specialisation is considered in Section 4 and the last section contains some concluding remarks.

Most available studies can be divided into two categories: (a) models that explicitly include public infrastructure but where foreign investment is not included and (b) models that explicitly include foreign investment but where public infrastructure is not included. This paper presents a unified framework where both foreign investment and public infrastructure are endogenous. This allows one to examine the impact of labour inflow on foreign investment, provision of public infrastructure and welfare. A number of empirical studies have demonstrated the importance of the provision of public infrastructure in real economies and in real life foreign investment is endogenous. This paper utilises a stylised model of a small open economy that produces two final goods by means of capital, labour and public infrastructure. The infrastructure is produced by means of capital and labour and its cost is financed by non-distortionary taxation. Unlike the existing studies that explicitly include public infrastructure, this paper assumes that provision of public infrastructure involves fixed as well as variable cost. The presence of public infrastructure gives rise to external economies of scale, which gives rise to multiple-equilibria. This paper considers the case of complete as well as incomplete specialisation. Due to free international capital mobility, foreign investment takes place in both the private and public sectors. Within the context of this paper, an increase in labour supply can also be attributed to exogenous labour inflow. The paper shows that, in the case of a diversified equilibrium, an increase in labour supply has no affect on the provision of public infrastructure and hence the wage rate. Consequently, a small increase in labour supply does not affect welfare. The Rybczynski theorem holds only if both industries derive equal benefits from the provision of public infrastructure. An increase in the supply of labour increases foreign investment as long as both private goods are equally capital intensive, otherwise foreign investment decreases. In the case of complete specialisation, an increase in labour supply increases the provision of public infrastructure and hence the wage rate as long as the equilibrium is stable. Increased provision of public infrastructure arising due to increased labour supply increases the production of the final good, thereby increasing the demand for capital, which results in increased foreign investment. Finally, it is shown that a small increase in labour supply increases welfare as long as the public infrastructure is productive and its provision involves some fixed cost.