Foreign Entry and Spillovers with Technological Incompatibilities in the Supply Chain

Thibault Fally and Juan Carluccio

No 7866, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Does foreign entry improve host country productivity and welfare? Existing studies have focused on the role of technology spillovers and backward linkages with domestic suppliers. In this paper, we study how these externalities are affected by technological incompatibilities between foreign and domestic technologies. When foreign technologies require specialized inputs, some local suppliers self-select into production for multinational firms. A decrease in the cost of inputs compatible with the foreign technology has heterogeneous effects. It benefits foreign firms and the most productive downstream domestic firms adopting the foreign technology, and negatively affects firms using the domestic technology. The impact on welfare is positive when we allow for endogenous entry in both upstream and downstream industries, but welfare gains can be negatively related to observed foreign presence at equilibrium. Our model can also reproduce various stylized facts drawn from the empirical literature on vertical and horizontal FDI spillovers.

Keywords: Multinational firms; Technological incompatibilities; Pecuniary externalities; Host country welfare (search for similar items in EconPapers)
JEL-codes: F23 O14 (search for similar items in EconPapers)
Date: 2010-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://cepr.org/publications/DP7866 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Foreign entry and spillovers with technological incompatibilities in the supply chain (2013)
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: https://EconPapers.repec.org/RePEc:cpr:ceprdp:7866

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP7866

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().