Foreign direct investment and spillovers: gradualism may be better

Klaus Desmet (), Felipe Meza () and Juan A. Rojas ()

Canadian Journal of Economics, 2008, vol. 41, issue 3, pages 926-953

Abstract: The standard argument says that in the presence of positive spillovers foreign direct investment should be promoted and subsidized. In contrast, this paper claims that the very existence of spillovers may require temporarily restricting FDI. Our argument is based on two features of spillovers: they are limited by the economy's absorptive capacity and they take time to materialize. By letting in capital more gradually, initial investment has the time to create spillovers - and upgrade the economy's absorptive capacity - before further investment occurs. The economy converges to a steady state with a superior technology and a greater capital stock.

JEL-codes: F2 O3 (search for similar items in EconPapers)
Date: 2008
View citations in EconPapers

Downloads: (external link)
http://economics.ca/cgi/xms?jab=v41n3/CJEv41n3p0926.pdf Full text (application/pdf)
Available to subscribers only. Alternative access through JSTOR and Ingenta.

Related works:
Working Paper: Foreign Direct Investment and Spillovers: Gradualism May Be Better (2004)
Working Paper: FOREIGN DIRECT INVESTMENT AND SPILLOVERS: GRADUALISM MAY BE BETTER (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cje:issued:v:41:y:2008:i:3:p:926-953

Ordering information: This journal article can be ordered from
http://economics.ca/en/membership.php

Access Statistics for this article

Canadian Journal of Economics is edited by David Green

More articles in Canadian Journal of Economics from Canadian Economics Association
Address: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
Contact information at EDIRC.
Series data maintained by Prof. Werner Antweiler ().