Foreign direct investment and spillovers: gradualism may be better
AbstractThe standard argument says that in the presence of positive spillovers foreign direct investment should be promoted and subsidized. In contrast, this paper claims that the very existence of spillovers may require temporarily restricting FDI. Our argument is based on two features of spillovers: they are limited by the economy's absorptive capacity and they take time to materialize. By letting in capital more gradually, initial investment has the time to create spillovers - and upgrade the economy's absorptive capacity - before further investment occurs. The economy converges to a steady state with a superior technology and a greater capital stock.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 41 (2008)
Issue (Month): 3 (August)
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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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Other versions of this item:
- Klaus Desmet & Juan Rojas, 2004. "Foreign Direct Investment And Spillovers: Gradualism May Be Better," Economics Working Papers we040401, Universidad Carlos III, Departamento de Economía.
- Desmet, Klaus & Rojas, Juan A, 2004. "Foreign Direct Investment and Spillovers: Gradualism May Be Better," CEPR Discussion Papers 4660, C.E.P.R. Discussion Papers.
- F2 - International Economics - - International Factor Movements and International Business
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
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