South-to-North direct investment in a quality ladders model

Pei-Ru Chen and Xiao-Lin Chen

Applied Economics Letters, 2024, vol. 31, issue 19, 1939-1945

Abstract: This paper develops a quality ladders model with endogenous technology-sourcing direct investment from the developing South to the developed North. In the model, Southern firms undertake innovation by setting up R&D subsidiaries in the North and transfer the state-of-the-art back to their parents when innovation succeeds. In contrast to previous models, we introduce outward foreign direct investment (FDI) of Southern multinationals, a new channel for international technology transfer from the North to the South, so as to capture the features of active technology seeking of the South. We also apply the model to examine the effects of Southern outward FDI incentives on innovation, production and welfare.

Date: 2024
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DOI: 10.1080/13504851.2023.2208829

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