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Technology Sourcing and Strategic Foreign Direct Investment

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  • Kjetil Bjorvatn
  • Carsten Eckel

Abstract

Empirical evidence suggests that technological spillovers are limited by distance. The present paper investigates the implications of this observation for the investment decisions of a technologically leading and lagging firm, located in different countries. Technological spillovers may induce "technology sourcing" foreign direct investment by the less advanced firm, as it seeks to upgrade its technology. Our main result, however, is that there may be strong incentives for the leading firm to undertake strategic investment abroad in order to prevent technology sourcing by the lagging firm. We analyze how trade costs, the technology gap between firms, technological spillovers, and the ability of a firm to transfer technology between plants affect the two firms' entry decisions. Copyright © 2006 The Authors; Journal compilation © 2006 Blackwell Publishing Ltd.

Suggested Citation

  • Kjetil Bjorvatn & Carsten Eckel, 2006. "Technology Sourcing and Strategic Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 14(4), pages 600-614, September.
  • Handle: RePEc:bla:reviec:v:14:y:2006:i:4:p:600-614
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    Cited by:

    1. Bárcena Ruiz, Juan Carlos & Garzón San Felipe, María Begoña, 2011. "Relocation and Investment in R&D by Firms," IKERLANAK 2011-52, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    2. Chrysovalantou Milliou, 2014. "Location for Foreign Direct Investment in Vertically Related Markets," Review of International Economics, Wiley Blackwell, pages 326-341.
    3. René Belderbos & Elissavet Lykogianni & Reinhilde Veugelers, 2008. "Strategic R&D Location by Multinational Firms: Spillovers, Technology Sourcing, and Competition," Journal of Economics & Management Strategy, Wiley Blackwell, pages 759-779.
    4. René Belderbos & Elissavet Lykogianni & Reinhilde Veugelers, 2008. "Strategic R&D Location in European Manufacturing Industries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 183-206.
    5. Chiara Franco & Francesco Rentocchini & Giuseppe Vittucci Marzetti, 2008. "Why do firms invest abroad? An analysis of the motives underlying Foreign Direct Investments," Department of Economics Working Papers 0817, Department of Economics, University of Trento, Italia.
    6. Christian Dreger & Dierk Herzer, 2013. "A further examination of the export-led growth hypothesis," Empirical Economics, Springer, vol. 45(1), pages 39-60, August.
    7. Smeets, Roger & Bosker, E.M., 2011. "Leaders, laggards and technology seeking strategies," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 481-497.
    8. Jota Ishikawa & Eiji Horiuchi, 2012. "Strategic Foreign Direct Investment in Vertically Related Markets," The Economic Record, The Economic Society of Australia, vol. 88(281), pages 229-242, June.
    9. Bárcena Ruiz, Juan Carlos & Garzón San Felipe, María Begoña, 2011. "Relocation and Investment in R&D by Firms," IKERLANAK 2011-52, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    10. Hans Gersbach & Armin Schmutzler, 2011. "Foreign direct investment and R&D-offshoring," Oxford Economic Papers, Oxford University Press, vol. 63(1), pages 134-157, January.
    11. Juan Bárcena-Ruiz & María Garzón, 2014. "Relocation and investment in R&D by firms," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 13(1), pages 25-38, April.
    12. repec:fep:journl:v:28:y:2017:i:1:p:34-49 is not listed on IDEAS
    13. Dierk Herzer, 2010. "The Long-Run Relationship between Outward FDI and Total Factor Productivity: Evidence for Developing Countries," Ibero America Institute for Econ. Research (IAI) Discussion Papers 199, Ibero-America Institute for Economic Research.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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