FDI and Technology Spillovers under Vertical Product Dierentiation
AbstractWhen Northern firms undertake FDI in the South, the superior technology they bring to their Southern operations spills over to Southern firms. Technology spillovers accompanied by FDI often enable Southern firms to enhance their product quality. This paper explores a model that incorporates quality-enhancing spillovers in an international duopoly model of vertical product differentiation. We find that the Northern firm, when it chooses to undertake FDI, strategically reduces its product quality to reduce the amount of technology that spills over to the Southern firm. This strategic quality reduction, which is often observed in reality, plays a critical role in welfare consequences and policy implications of quality-enhancing technology spillovers.
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Bibliographic InfoPaper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2012-19.
Length: 39 pages
Date of creation: Mar 2012
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FDI; international oligopoly; quality-enhancing spillovers; strategic quality reduction; vertical product differentiation; welfare.;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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