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Mode of foreign entry, technology transfer, and FDI policy

In: Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy

Author

Listed:
  • Aaditya Mattoo
  • Marcelo Olarreaga
  • Kamal Saggi

Abstract

Foreign direct investment (FDI) can take place either through the direct entry of foreign firms or the acquisition of existing domestic firms. The preferences of a foreign firm and a welfare-maximizing host country government over these two modes of FDI are examined in the presence of costly technology transfer. The trade-off between technology transfer and market competition emerges as a key determinant of preferences. The clash between the foreign firm’s equilibrium choice and the local government’s ranking of the two modes of entry can provide a rationale for some frequently observed FDI restrictions.

Suggested Citation

  • Aaditya Mattoo & Marcelo Olarreaga & Kamal Saggi, 2023. "Mode of foreign entry, technology transfer, and FDI policy," World Scientific Book Chapters, in: Kamal Saggi (ed.), Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy, chapter 25, pages 567-583, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813233027_0025
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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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