Foreign Direct Investment And Spillovers: Gradualism May Be Better
AbstractIn contrast to the standard literature, we show that the presence of spillovers may justify temporarily restricting the inflow of foreign direct investment. Our argument is based on two stylized features of spillovers: first, technology transfers --- and subsequent spillovers --- are limited by the economy’s absorptive capacity; and second, spillovers take time to materialize. By letting capital in more gradually, initial investment has the time to create spillovers --- and upgrade the economy’s absorptive capacity --- before further investment occurs. This allows subsequent capital inflows to benefit from greater technology transfers. As a result, the economy converges to a steady state with a superior technology and a greater capital stock.
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Bibliographic InfoPaper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we040401.
Date of creation: Jan 2004
Date of revision:
Other versions of this item:
- Klaus Desmet & Felipe Meza & Juan A. Rojas, 2008. "Foreign direct investment and spillovers: gradualism may be better," Canadian Journal of Economics, Canadian Economics Association, vol. 41(3), pages 926-953, August.
- 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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