Optimal foreign investment dynamics in the presence of technological spillovers
In this paper we present a dynamic model of a firm which is deciding whether to outsource parts of its production to a less developed economy where wages and the level of technology are lower. Outsourcing reduces production costs but is associated with spillovers to foreign potential competitors. Spillovers over time increase productivity of firms in the foreign country and make them stronger competitors on the common market. The paper analyzes the inter-temporally optimal behavior of the firm and shows that two outcomes are possible in the long-run. One outcome is that there is one steady state where the firm invests a positive amount in the foreign country and the other outcome is a continuum of steady states with no investment. The paper then derives conditions such that it is optimal for the firm to invest in the foreign country and characterizes different types of optimal dynamic investment patterns. In addition, using numerical dynamic optimization methods, the effect of the speed of technology adoption and of the wage differential on total labor income in the home country is studied taking into account the transition dynamics.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rachel Griffith & Helen Simpson & Stephen Redding, 2002.
"Productivity convergence and foreign ownership at the establishment level,"
IFS Working Papers
W02/22, Institute for Fiscal Studies.
- Rachel Griffith & Stephen Redding & Helen Simpson, 2003. "Productivity Convergence and Foreign Ownership at the Establishment Level," CEP Discussion Papers dp0573, Centre for Economic Performance, LSE.
- Griffith, Rachel & Redding, Stephen J. & Simpson, Helen, 2002. "Productivity Convergence and Foreign Ownership at the Establishment Level," CEPR Discussion Papers 3765, C.E.P.R. Discussion Papers.
- Rachel Griffith & Stephen Redding & Helen Simpson, 2003. "Productivity convergence and foreign ownership at the establishment level," LSE Research Online Documents on Economics 3666, London School of Economics and Political Science, LSE Library.
- Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004.
"Export versus FDI with Heterogeneous Firms,"
3229098, Harvard University Department of Economics.
- Javorcik, Beata Smarzynska & Spatareanu, Mariana, 2008.
"To share or not to share: Does local participation matter for spillovers from foreign direct investment?,"
Journal of Development Economics,
Elsevier, vol. 85(1-2), pages 194-217, February.
- Beata Javorcik & Mariana Spatareanu, 2006. "To Share or Not To Share: Does Local Participation Matter for Spillovers from Foreign Direct Investment?," Working Papers Rutgers University, Newark 2006-001, Department of Economics, Rutgers University, Newark.
- Beata Smarzynska Javorcik & Mariana Spatareanu, 2003. "To share or not to share : does local participation matter for spillovers from foreign direct investment?," Policy Research Working Paper Series 3118, The World Bank.
- Leonard Cheng, 1984. "International trade and technology: A brief survey of the recent literature," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 120(1), pages 165-189, March.
- Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329, May.
- Mattoo, Aaditya & Olarreaga, Marcelo & Saggi, Kamal, 2001.
"Mode of Foreign Entry, Technology Transfer, and FDI Policy,"
CEPR Discussion Papers
2870, C.E.P.R. Discussion Papers.
- Mattoo, Aaditya & Olarreaga, Marcelo & Saggi, Kamal, 2004. "Mode of foreign entry, technology transfer, and FDI policy," Journal of Development Economics, Elsevier, vol. 75(1), pages 95-111, October.
- Glass, Amy Jocelyn & Saggi, Kamal, 2002.
" Multinational Firms and Technology Transfer,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 104(4), pages 495-513, December.
- Petit, Maria-Luisa & Sanna-Randaccio, Francesca, 2000. "Endogenous R&D and foreign direct investment in international oligopolies," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 339-367, February.
- Raouf Boucekkine & Blanca Martínez & CARGI SAGLAM, 2003.
"The Development Problem Under Embodiment,"
Working Papers. Serie AD
2003-08, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Raouf, BOUCEKKINE & Blanca, MARTINEZ & Cagri, SAGLAM, 2003. "The Development problem under embodiment," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2003006, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- BOUCEKKINE, Raouf & MARTINEZ, Blanca & SAGLAM, Cagri, "undated". "The Development problem under embodiment," CORE Discussion Papers RP 1852, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Magnus Blomstrom & Jian-Ye Wang, 1989.
"Foreign Investment and Technology Transfer: A Simple Model,"
NBER Working Papers
2958, National Bureau of Economic Research, Inc.
- Wang, Jian-Ye & Blomstrom, Magnus, 1992. "Foreign investment and technology transfer : A simple model," European Economic Review, Elsevier, vol. 36(1), pages 137-155, January.
- Ping Lin & Kamal Saggi, 1999. "Incentives for Foreign Direct Investment under Imitation," Canadian Journal of Economics, Canadian Economics Association, vol. 32(5), pages 1275-1298, November.
- Sourafel Girma & David Greenaway & Katharine Wakelin, 2013.
"Who Benefits from Foreign Direct Investment in the UK?,"
Scottish Journal of Political Economy,
Scottish Economic Society, vol. 60(5), pages 560-574, November.
- Girma, Sourafel & Greenaway, David & Wakelin, Katharine, 2001. "Who Benefits from Foreign Direct Investment in the UK?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(2), pages 119-133, May.
- Saggi, Kamal, 2000.
"Trade, foreign direct investment, and international technology transfer : a survey,"
Policy Research Working Paper Series
2349, The World Bank.
- Kamal Saggi, 2002. "Trade, Foreign Direct Investment, and International Technology Transfer: A Survey," World Bank Research Observer, World Bank Group, vol. 17(2), pages 191-235, September.
- Haunschmied, Josef L. & Kort, Peter M. & Hartl, Richard F. & Feichtinger, Gustav, 2003.
"A DNS-curve in a two-state capital accumulation model: a numerical analysis,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 27(4), pages 701-716, February.
- Haunschmied, J.L. & Kort, P.M. & Hartl, R.F. & Feichtinger, G., 2003. "A DNS-curve in a two-state capital accumulation model : A numerical analysis," Other publications TiSEM 3c849711-428b-42d8-972d-5, Tilburg University, School of Economics and Management.
- Grether, Jean-Marie, 1999. "Determinants of Technological Diffusion in Mexican Manufacturing: A Plant-Level Analysis," World Development, Elsevier, vol. 27(7), pages 1287-1298, July.
- Holger Görg & David Greenaway, 2004.
"Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?,"
World Bank Research Observer,
World Bank Group, vol. 19(2), pages 171-197.
- Görg, Holger & Greenaway, David, 2003. "Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," IZA Discussion Papers 944, Institute for the Study of Labor (IZA).
- Balázs, Muraközy & Halpern, László, 2005.
"Does Distance Matter in Spillover?,"
CEPR Discussion Papers
4857, C.E.P.R. Discussion Papers.
- Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2007.
"When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies,"
CEPR Discussion Papers
6546, C.E.P.R. Discussion Papers.
- Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2007. "When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies," IZA Discussion Papers 3079, Institute for the Study of Labor (IZA).
- Das, Sanghamitra, 1987. "Externalities, and technology transfer through multinational corporations A theoretical analysis," Journal of International Economics, Elsevier, vol. 22(1-2), pages 171-182, February.
- Grune, Lars & Semmler, Willi, 2004. "Using dynamic programming with adaptive grid scheme for optimal control problems in economics," Journal of Economic Dynamics and Control, Elsevier, vol. 28(12), pages 2427-2456, December.
- Dinopoulos, Elias & Segerstrom, Paul, 2010. "Intellectual property rights, multinational firms and economic growth," Journal of Development Economics, Elsevier, vol. 92(1), pages 13-27, May.
- Parello, Carmelo Pierpaolo, 2008. "A north-south model of intellectual property rights protection and skill accumulation," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 253-281, February.
When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:34:y:2010:i:3:p:296-313. 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: (Shamier, Wendy)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.