Risk and the technology content of FDI: A dynamic model

Pao-Li Chang () and Chia-Hui Lu

Journal of International Economics, 2012, vol. 86, issue 2, 306-317

Abstract: This paper incorporates risk into the FDI decisions of firms. The risk of FDI failure increases with the gap between the South's technology frontier and the technology complexity of a firm's product. This leads to a double-crossing sorting pattern of FDI—firms of intermediate technology levels are more likely than others to undertake FDI. It is with the attempt to relax the upper bound of the technology content of FDI, we argue, that many FDI policies are created. The theory's predictions are consistent with the empirical patterns of FDI in China by US and Taiwanese manufacturing firms.

Keywords: Foreign direct investment; Technology; Risk; Spillover; Dynamic (search for similar items in EconPapers)
JEL-codes: F21 F23 O24 O33 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (7)

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Working Paper: Risk and the Technology Content of FDI:A Dynamic Model (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:86:y:2012:i:2:p:306-317

DOI: 10.1016/j.jinteco.2011.09.001

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