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Innovation, Foreign Direct Investment and Growth

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  • Walz, Uwe

Abstract

Direct foreign investment is incorporated in a dynamic general equilibrium model with endogenous technological change. In contrast to recent endogenous growth approaches, the author allows for geographical separation of the innovation and production of newly developed goods. Firms acquire specific knowledge through R&D investment in the more developed country and use their specific asset to establish a production plant in the low-cost country. Foreign direct investment is accompanied by interregional spillovers of knowledge from the more to the less advanced country. The author derives a steady-state equilibrium with active innovation and production activities in the high-technology sector in both countries. Furthermore, the implications of factor flow liberalization as well as of industrial policies are investigated. Copyright 1997 by The London School of Economics and Political Science

Suggested Citation

  • Walz, Uwe, 1997. "Innovation, Foreign Direct Investment and Growth," Economica, London School of Economics and Political Science, vol. 64(253), pages 63-79, February.
  • Handle: RePEc:bla:econom:v:64:y:1997:i:253:p:63-79
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    Citations

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    Cited by:

    1. Johnson, Andreas, 2006. "The Effects of FDI Inflows on Host Country Economic Growth," Working Paper Series in Economics and Institutions of Innovation 58, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    2. Kottaridi, Constantina & Stengos, Thanasis, 2010. "Foreign direct investment, human capital and non-linearities in economic growth," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 858-871, September.
    3. Jocelyn Glass, Amy & Saggi, Kamal, 2002. "Licensing versus direct investment: implications for economic growth," Journal of International Economics, Elsevier, vol. 56(1), pages 131-153, January.
    4. Uwe Walz, 1997. "Dynamic Effects of Economic Integration: A Survey," Open Economies Review, Springer, vol. 8(3), pages 309-326, July.
    5. Muhammad Arshad Khan, 2007. "Foreign Direct Investment and Economic Growth: The Role of Domestic Financial Sector," PIDE-Working Papers 2007:18, Pakistan Institute of Development Economics.
    6. Mebratu Seyoum & Renshui Wu & Jihong Lin, 2015. "Foreign Direct Investment and Economic Growth: The Case of Developing African Economies," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 122(1), pages 45-64, May.
    7. Amy Glass & Kamal Saggi, 1999. "The Dynamic Impact of Internalization Advantage," Working Papers 99-04, Ohio State University, Department of Economics.
    8. Chih‐Hai Yang & Yi‐Yin Wu & Hui‐Lin Lin, 2010. "Outward Investment To China And Local Innovation Of Taiwanese Manufacturing Firms," The Japanese Economic Review, Japanese Economic Association, vol. 61(4), pages 538-557, December.
    9. Liu, Xiaming & Parker, David & Vaidya, Kirit & Wei, Yingqi, 2001. "The impact of foreign direct investment on labour productivity in the Chinese electronics industry," International Business Review, Elsevier, vol. 10(4), pages 421-439, August.
    10. Huilin Lin & Ryh-Song Yeh, 2005. "The interdependence between FDI and R&D: an application of an endogenous switching model to Taiwan's electronics industry," Applied Economics, Taylor & Francis Journals, vol. 37(15), pages 1789-1799.

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