Foreign direct investment in the presence of technological spillovers and international competition

Herbert Dawid, Alfred Greiner and Benteng Zou

No 267, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: In this paper we analyze dynamic incentives of a firm to invest in production facilities in a less developed country with lower wage costs and lower productivity. Foreign investment induces that, due to technological spillovers, productivity of local firms in the foreign country increases. Firms from both regions compete on the same oligopolistic market. We show that there is one steady state with a positive stock of foreign direct investment in the less developed region and, in addition, there is a continuum of (neutrally stable) steady states where the firm never invests abroad. We analyze effects of variations of parameters on the steady state values, numerically study transitional dynamics and give a picture of the global dynamics. Finally, we analyze how the speed of technology transfer, and the wage level in the home country affects the total labor income earned in the home country

Keywords: Foreign direct investment; technology spillovers; optimal control (search for similar items in EconPapers)
JEL-codes: C61 D92 F21 (search for similar items in EconPapers)
Date: 2006-07-04
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecfa:267

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