The Amendatory Mundell''s Substitution Model of Investment and Trade

摘要

Mundell studied the relationship between foreign direct investment and trade and concluded that one country''s collection customs duties on import productions will stimulate the inflow of the factor and substitute trade completely at last. In this paper, through validation of the Mundell''s model by supposing the production possibilities frontier is a conic function, we find what Mundell had found was an exceptive point, which only when the country produced specialization. The true equilibrium point should be one point in the Rybcznski line between the first production equilibrium point and the upward point of the first consumer equilibrium point on the Rybcznski line, which is not the upward point of the first consumer equilibrium on the Rybcznski line. At the same time, the welfare of the host country will increase when the host country collects tariff