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Technology Gap, Foreign Direct Investment, and Market Structure

Spiros Bougheas (), Sir David Greenaway (), Kittipong Jangkamolkulchai and Richard Kneller ()

Discussion Papers from University of Nottingham, GEP

Abstract: We develop and analyze an entry model that predicts that the likelihood that foreign firms enter a country increases with the productivity gap between foreign and domestic firms. The intuition is that foreign firms locate where their competitive advantage is highest and thus enter countries where their productivity is higher relative to domestic firms. We test this model using firm level data on acquisitions of British firms by foreign firms and find results that are consistent with our model’s predictions.

Keywords: Technology gap; FDI; entry (search for similar items in EconPapers)
Date: 2008
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