The Impact of Foreign Direct Investment on Home and Host Countries with Endogenous R&D

Francesca Sanna‐Randaccio

Review of International Economics, 2002, vol. 10, issue 2, 278-298

Abstract: The paper analyzes the impact of FDI on home and host countries, when firms compete both in the choice of international strategy and in R&D. A two‐country, two‐firm model is used. The problem is structured as a three‐stage game in which firms must decide: the mode of foreign expansion; how much to invest in R&D; how much to sell in each market. It is shown that in high‐technology sectors a policy of attracting inward FDI may increase welfare in both the home and host countries. The effect on host‐country welfare is found to be more beneficial if technological spillovers are national, instead of international, in scope.

Date: 2002
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