Rethinking the impacts of foreign investors on urban development: The city of Macao

Abstract

A number of papers in the economics and urban literature find positive impacts of foreign investment on cities and praise the role of foreign investors in urban development. The author argues for a different stance by developing an urban economics model for tourist cities. The model illustrates that in the presence of significant side effects, foreign investors' and a tourist city's preferences regarding openness of the city greatly diverge. Foreign investors tend to shape a city's policymaking toward greater openness. Therefore, policymakers in tourist cities concerned about sustainable development should carefully regulate foreign capital inflows at an optimal level. Evidence from Macao lends support to the theoretical construction. © 2011 Springer-Verlag.