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FDI Versus R&D in an Endogenous Growth Model

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  • Thanh Tam Nguyen‐Huu
  • Ngoc‐Sang Pham

Abstract

We investigate the role of foreign direct investment (FDI) and research and development (R&D) in the transitional dynamics of host countries using an optimal growth model. FDI may benefit the host country's GNP by enabling multinational enterprises to hire local workers. However, if the host country focuses solely on FDI, it may fall into a middle‐income trap. Most importantly, we show that if the host country invests in R&D, its economy can reach sustained growth. In this case, FDI benefits the host country, but only in the early stages of its development process.

Suggested Citation

  • Thanh Tam Nguyen‐Huu & Ngoc‐Sang Pham, 2026. "FDI Versus R&D in an Endogenous Growth Model," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 28(4), August.
    • Handle: RePEc:bla:jpbect:v:28:y:2026:i:4:n:e70126
    DOI: 10.1111/jpet.70126
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