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Foreign direct investment and spillovers: gradualism may be better

Juan Rojas () and Klaus Desmet ()

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: In contrast to the standard literature, we show that the presence of spillovers may justify temporarily restricting the inflow of foreign direct investment. Our argument is based on two stylized features of spillovers: first, technology transfers --- and subsequent spillovers --- are limited by the economy's absorptive capacity; and second, spillovers take time to materialize. By letting capital in more gradually, initial investment has the time to create spillovers --- and upgrade the economy's absorptive capacity --- before further investment occurs. This allows subsequent capital inflows to benefit from greater technology transfers. As a result, the economy converges to a steady state with a superior technology and a greater capital stock.

Keywords: Foreign; direct; investment; Spillovers; Gradualism; Liberalization; Absorptive; capacity (search for similar items in EconPapers)
JEL-codes: F2 O3 (search for similar items in EconPapers)
Date: 2004-01
New Economics Papers: this item is included in nep-ifn
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Related works:
Journal Article: Foreign direct investment and spillovers: gradualism may be better (2008) Downloads
Journal Article: Foreign direct investment and spillovers: gradualism may be better (2008) Downloads
Working Paper: Foreign Direct Investment and Spillovers: Gradualism May Be Better (2004) Downloads
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