Risk, Learning, and the Technology Content of FDI: A Dynamic Model

Pao-Li Chang () and Chia-Hui Lu

No 30-2010, Working Papers from Singapore Management University, School of Economics

Abstract: This paper builds a dynamic model to examine the two-way interaction between FDI and the South's technology frontier. Inferior technology capacity in the South generates risk of production failure, which discourages inward FDI with high technology content. Only if the risk is not prohibitive does the first wave of FDI take place, which enables the South to learn from producing for multinationals and push forward its technology frontier. Consequently, the risk constraints are relaxed, which induces subsequent FDI with ever higher technology content. This reinforcing process implies an FDI agglomeration phenomenon and a magnified long-run policy impact.

JEL-codes: F21 F23 O24 O33 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2010-12
New Economics Papers: this item is included in nep-sea
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Published in SMU Economics and Statistics Working Paper Series

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