Temporary Migration and Foreign Direct Investment ∗

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 of labour mobility might affect FDI outflows. A numerical simulation is performed showing that to a higher labour mobility corresponds a higher income growth rate. Some policy implications and further research direction are suggested. JEL classification : J61, F21, F22 . ∗A previous version of the paper has been presented at the XVIII Villa Mondragone International Economic Seminar, 26th-27th June 2006, and at EEFS 2006 Fifth Annual Conference, 18th-21st May. The authors aknowledge M. Schiff and G. Gandolfo for useful comments. †University of Cassino, Italy. e.mail: [email protected]; ‡University of Rome "La Sapienza", Italy. e.mail: [email protected].