IDEAS home Printed from https://ideas.repec.org/a/cje/issued/v41y2008i3p926-953.html
   My bibliography  Save this article

Foreign direct investment and spillovers: gradualism may be better

Author

Listed:
  • Klaus Desmet
  • Felipe Meza
  • Juan A. Rojas

Abstract

The standard argument says that in the presence of positive spillovers foreign direct investment should be promoted and subsidized. In contrast, this paper claims that the very existence of spillovers may require temporarily restricting FDI. Our argument is based on two features of spillovers: they are limited by the economy's absorptive capacity and they take time to materialize. By letting in capital more gradually, initial investment has the time to create spillovers - and upgrade the economy's absorptive capacity - before further investment occurs. The economy converges to a steady state with a superior technology and a greater capital stock.

Suggested Citation

  • Klaus Desmet & Felipe Meza & Juan A. Rojas, 2008. "Foreign direct investment and spillovers: gradualism may be better," Canadian Journal of Economics, Canadian Economics Association, vol. 41(3), pages 926-953, August.
  • Handle: RePEc:cje:issued:v:41:y:2008:i:3:p:926-953
    as

    Download full text from publisher

    File URL: http://economics.ca/cgi/xms?jab=v41n3/CJEv41n3p0926.pdf
    File Function: Full text
    Download Restriction: Available to subscribers only. Alternative access through JSTOR and Ingenta.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Haaland, Jan I & Wooton, Ian, 1999. " International Competition for Multinational Investment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 631-649, December.
    2. Nelson, Richard R & Pack, Howard, 1999. "The Asian Miracle and Modern Growth Theory," Economic Journal, Royal Economic Society, vol. 109(457), pages 416-436, July.
    3. Blomstrom, Magnus & Kokko, Ari, 1998. " Multinational Corporations and Spillovers," Journal of Economic Surveys, Wiley Blackwell, vol. 12(3), pages 247-277, July.
    4. Wolfgang Keller & Stephen R. Yeaple, 2009. "Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States," The Review of Economics and Statistics, MIT Press, vol. 91(4), pages 821-831, November.
    5. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
    6. Pierre-Olivier Gourinchas & Olivier Jeanne, 2006. "The Elusive Gains from International Financial Integration," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 715-741.
    7. Laffont, Jean-Jacques & Qian, Yingyi, 1999. "The dynamics of reform and development in China: A political economy perspective," European Economic Review, Elsevier, vol. 43(4-6), pages 1105-1114, April.
    8. Wolfgang Keller, 2004. "International Technology Diffusion," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 752-782, September.
    9. Glass, Amy Jocelyn & Saggi, Kamal, 1999. "FDI policies under shared factor markets," Journal of International Economics, Elsevier, vol. 49(2), pages 309-332, December.
    10. Aizenman, Joshua & Yi, Sang-Seung, 1998. "Controlled Openness and Foreign Direct Investment," Review of Development Economics, Wiley Blackwell, vol. 2(1), pages 1-10, February.
    11. Keller, Wolfgang, 1996. "Absorptive capacity: On the creation and acquisition of technology in development," Journal of Development Economics, Elsevier, vol. 49(1), pages 199-227, April.
    12. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
    13. Gordon H. HANSON, 2001. "Should Countries Promote Foreign Direct Investment?," G-24 Discussion Papers 9, United Nations Conference on Trade and Development.
    14. Glass, Amy Jocelyn & Saggi, Kamal, 1998. "International technology transfer and the technology gap," Journal of Development Economics, Elsevier, vol. 55(2), pages 369-398, April.
    15. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 369-405.
    16. Alwyn Young, 1992. "A Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore," NBER Chapters,in: NBER Macroeconomics Annual 1992, Volume 7, pages 13-64 National Bureau of Economic Research, Inc.
    17. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    18. Gorg, Holger & Strobl, Eric, 2001. "Multinational Companies and Productivity Spillovers: A Meta-analysis," Economic Journal, Royal Economic Society, vol. 111(475), pages 723-739, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Richard Harris, 2009. "Spillover and Backward Linkage Effects of FDI: Empirical Evidence for the UK," SERC Discussion Papers 0016, Spatial Economics Research Centre, LSE.
    2. Gamal Atallah, 2009. "A Three-Period Analysis of R&D Spillovers in the Presence of an Industry Life Cycle Pattern," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 8(1), pages 21-35, April.
    3. repec:taf:ceasxx:v:58:y:2006:i:6:p:881-902 is not listed on IDEAS
    4. Herbert Dawid & Benteng Zou, 2017. "Foreign Direct Investment with Endogenous Technology Choice," Pacific Economic Review, Wiley Blackwell, vol. 22(1), pages 3-22, February.
    5. Wang, Chengqi & Deng, Ziliang & Kafouros, Mario I. & Chen, Yan, 2012. "Reconceptualizing the spillover effects of foreign direct investment: A process-dependent approach," International Business Review, Elsevier, vol. 21(3), pages 452-464.

    More about this item

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cje:issued:v:41:y:2008:i:3:p:926-953. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Prof. Werner Antweiler). General contact details of provider: http://edirc.repec.org/data/ceaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.