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Technology diffusion and global welfare effects: Imitative R&D vs. South-bound FDI

  • Lin, Hwan C.

A country in question is positioned in the middle of a global technology race. To shorten its technology gap with the forerunner (North), this middle country must invest in imitative R&D. To exploit cheap labor in the technological laggard (South), it also must invest in South-bound FDI. A dynamic general-equilibrium model of three countries (North, Middle, South) is set up to numerically analyze how the Middle's refraining South-bound FDI affects international technology diffusion, international wage gaps, and international welfare. The Middle always finds a need to socially optimize investing balance between imitative R&D and South-bound FDI, while the South is instead in favor of as much South-bound FDI as possible. Interestingly, the North may, or may not, align with the Middle's tightening South-bound FDI, depending on how fast the Northern product innovation can proceed over time. Both transitional dynamics and the steady-state equilibrium are computed.

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Article provided by Elsevier in its journal Structural Change and Economic Dynamics.

Volume (Year): 21 (2010)
Issue (Month): 4 (November)
Pages: 231-247

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Handle: RePEc:eee:streco:v:21:y:2010:i:4:p:231-247
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