Reference : Foreign direct investment with endogenous technology choice
Scientific journals : Article
Business & economic sciences : Quantitative methods in economics & management
Foreign direct investment with endogenous technology choice
Dawid, Herbert []
Zou, Benteng mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
Pacific Economic Review
Blackwell Publishing
[en] Foreign direct investment ; technology spillovers ; optimal control
[en] In this paper, we analyze optimal foreign direct investment of a firm operating in a duopolistic market. Foreign direct investment induces technological spillovers to a competitor in the foreign country to intensity of which depends on the absorptive capacity of the foreign firm and the size of the technological gap. We characterize a technology spillover threshold and show that for an intensity of spillovers below this threshold, there is a unique locally asymptotic stable steady state with a positive capital stock in the developing country. Furthermore, we characterize how optimal foreign investment patterns and the investor’s value function depend on the level of technology transferred and characterize the optimal level to be used for the foreign direct investment.

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