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FDI and Technology Spillovers under Vertical Product Di erentiation

Author

Listed:
  • Hodaka Morita

    (School of Economics, The University of New South Wales)

  • Xuan Nguyen

    (Deakin Graduate School of Business)

Abstract

When 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.

Suggested Citation

  • Hodaka Morita & Xuan Nguyen, 2012. "FDI and Technology Spillovers under Vertical Product Di erentiation," Discussion Papers 2012-19, School of Economics, The University of New South Wales.
    • Handle: RePEc:swe:wpaper:2012-19
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2012-19.pdf
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    References listed on IDEAS

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    Cited by:

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    3. Kiyoshi Matsubara, 2012. "Home-Market and Cost Effects of International Product-Quality Allocation," ERSA conference papers ersa12p284, European Regional Science Association.
    4. Pavla Nikolovova, 2012. "The Impact of FDI on the Host Economy," CERGE-EI Working Papers wp471, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    5. Munirul H. Nabin & Xuan Nguyen & Pasquale M. Sgro, 2013. "Technology Transfer, Quality Standards, and North–South Trade," Review of International Economics, Wiley Blackwell, vol. 21(4), pages 783-796, September.

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    More about this item

    Keywords

    FDI; international oligopoly; quality-enhancing spillovers; strategic quality reduction; vertical product differentiation; welfare.;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • 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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