FDI Versus R&D in an Endogenous Growth Model

Thanh Tam Nguyen-Huu () and Ngoc‐Sang Pham ()
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Thanh Tam Nguyen-Huu: Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School
Ngoc‐Sang Pham: EM Normandie - École de Management de Normandie = EM Normandie Business School

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Abstract: We investigate the role of foreign direct investment (FDI) and research and development (R&D) in the transitional dynamics of host countries using an optimal growth model. FDI may benefit the host country's GNP by enabling multinational enterprises to hire local workers. However, if the host country focuses solely on FDI, it may fall into a middle‐income trap. Most importantly, we show that if the host country invests in R&D, its economy can reach sustained growth. In this case, FDI benefits the host country, but only in the early stages of its development process.

Date: 2026-07-09
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Published in Journal of Public Economic Theory, 2026, 28 (4), ⟨10.1111/jpet.70126⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-05687174

DOI: 10.1111/jpet.70126

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