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Mode of Foreign Entry, Technology Transfer, and FDI Policy

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Author Info
Mattoo, Aaditya
Olarreaga, Marcelo
Saggi, Kamal

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Abstract

Foreign direct investment (FDI) can take place either through the direct entry of foreign firms or the acquisition of existing domestic firms. The preferences of a foreign firm and the host country government over these two modes of FDI are examined in the presence of costly technology transfer. The trade-off between technology transfer and market competition emerges as a key determinant of preferences. The Paper identifies the circumstances in which the government and foreign firm's choices diverge, and how domestic welfare can be improved by restrictions on FDI which induce the foreign firm to choose the socially preferred mode of entry.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2870.

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Date of creation: Jun 2001
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Handle: RePEc:cpr:ceprdp:2870

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Keywords: foreign Direct Investment investment policies technology transfer

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Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May. [Downloadable!] (restricted)
  2. Al-Saadon, Yousef & Das, Satya P., 1996. "Host-country policy, transfer pricing and ownership distribution in international joint ventures: A theoretical analysis," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 345-364, May. [Downloadable!] (restricted)
  3. Saggi, Kamal, 1999. "Foreign Direct Investment, Licensing, and Incentives for Innovation," Review of International Economics, Blackwell Publishing, vol. 7(4), pages 699-714, November.
  4. Campbell, H. F. & Hand, A. J., 1998. "Joint ventures and technology transfer: the Solomon Islands pole-and-line fishery," Journal of Development Economics, Elsevier, vol. 57(2), pages 421-442. [Downloadable!] (restricted)
  5. Svejnar, Jan & Smith, Stephen C, 1984. "The Economics of Joint Ventures in Less Developed Countries," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 149-67, February. [Downloadable!] (restricted)
  6. Marjit, Sugata & Broll, Udo & Mallick, Indrajit, 1995. "A theory of overseas joint ventures," Economics Letters, Elsevier, vol. 47(3-4), pages 367-370, March. [Downloadable!] (restricted)
  7. Markusen, James R., 2001. "Contracts, intellectual property rights, and multinational investment in developing countries," Journal of International Economics, Elsevier, vol. 53(1), pages 189-204, February. [Downloadable!] (restricted)
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  8. Ethier, Wilfred J. & Markusen, James R., 1996. "Multinational firms, technology diffusion and trade," Journal of International Economics, Elsevier, vol. 41(1-2), pages 1-28, August. [Downloadable!] (restricted)
    Other versions:
  9. Saggi, Kamal, 1996. "Entry into a Foreign Market: Foreign Direct Investment versus Licensing," Review of International Economics, Blackwell Publishing, vol. 4(1), pages 99-104, February.
  10. Kamien, Morton I & Zang, Israel, 1990. "The Limits of Monopolization through Acquisition," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 465-99, May. [Downloadable!] (restricted)
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  11. Reynolds, Robert J. & Snapp, Bruce R., 1986. "The competitive effects of partial equity interests and joint ventures," International Journal of Industrial Organization, Elsevier, vol. 4(2), pages 141-153, June. [Downloadable!] (restricted)
  12. James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 225-235, Spring. [Downloadable!] (restricted)
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  13. Teece, David J, 1977. "Technology Transfer by Multinational Firms: The Resource Cost of Transferring Technological Know-how," Economic Journal, Royal Economic Society, vol. 87(346), pages 242-61, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Calderon, Cesar & Loayza, Norman & Serven, Luis, 2004. "Greenfield foreign direct investment and mergers and acquisitions - feedback and macroeconomic effects," Policy Research Working Paper Series 3192, The World Bank. [Downloadable!]
  2. Mikhail Klimenko & Kamal Saggi, 2004. "Technical Compatibility and the Mode of Foreign Entry under Network Externalities," Working Papers 04-05, NET Institute, revised Oct 2004. [Downloadable!]
  3. Bertrand, Olivier & Hakkala, Katariina & Norbäck, Pehr-Johan, 2007. "Cross-Border Acquisition or Greenfield Entry: Does it Matter for Affiliate R&D?," Working Paper Series 693, Research Institute of Industrial Economics. [Downloadable!]
  4. Piotr Stryszowski, 2006. "Brains for Capital. The Effect of Brain Drain on Investments and Convergence," DEGIT Conference Papers c011_049, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
  5. Arijit Mukherjee, 2006. "Cross-border merger and domestic welfare," Economics Bulletin, Economics Bulletin, vol. 6(16), pages 1-8. [Downloadable!]
  6. Stefanie A. Haller, 2005. "The Impact of Multinational Entry on Domestic Market Structure and R&D," Economics Working Papers ECO2005/16, European University Institute. [Downloadable!]
  7. Norbäck, Pehr-Johan & Persson, Lars, 2007. "Globalization and Profitability of Cross-border Mergers & Acquisitions," CEPR Discussion Papers 6102, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Fidel Pérez Sebastián & Lilia Maliar & Serguei Maliar, 2005. "Sovereign Risk, Fdi Spillovers, And Economic Growth," Working Papers. Serie AD 2005-27, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  9. Norbäck, Pehr-Johan & Persson, Lars & Vlachos, Jonas, 2006. "Cross-Border Acquisitions and Corporate Taxes: Efficiency and Tax Revenues," Working Paper Series 663, Research Institute of Industrial Economics. [Downloadable!]
  10. Facundo Albornoz, 2007. "Subsidy Competition and the Mode of FDI: Acquisition vs Greenfield," Discussion Papers 05-15R, Department of Economics, University of Birmingham. [Downloadable!]
    Other versions:
  11. Leahy, Dermot & Naghavi, Alireza, 2006. "Intellectual Property Rights and Entry into a Foreign Market: FDI vs Joint Ventures," CEPR Discussion Papers 5672, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Norbäck, Pehr-Johan & Persson, Lars, 2005. "Investment Liberalization - Why a Restrictive Cross-Border Merger Policy can be Counterproductive," Working Paper Series 644, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  13. Helene, LATZER, 2006. "Foreign Direct Investment and the Nature of the Imitation Process," Université catholique de Louvain, Département des Sciences Economiques Working Paper 2006012, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
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