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Risk and the technology content of FDI: A dynamic model

  • Chang, Pao-Li
  • Lu, Chia-Hui

This paper incorporates risk into the FDI decisions of firms. The risk of FDI failure increases with the gap between the South's technology frontier and the technology complexity of a firm's product. This leads to a double-crossing sorting pattern of FDI—firms of intermediate technology levels are more likely than others to undertake FDI. It is with the attempt to relax the upper bound of the technology content of FDI, we argue, that many FDI policies are created. The theory's predictions are consistent with the empirical patterns of FDI in China by US and Taiwanese manufacturing firms.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022199611001164
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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 86 (2012)
Issue (Month): 2 ()
Pages: 306-317

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Handle: RePEc:eee:inecon:v:86:y:2012:i:2:p:306-317
DOI: 10.1016/j.jinteco.2011.09.001
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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