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Foreign direct investment in the presence of technological spillovers and international competition


  • Herbert Dawid

    () (Department of Economics University of Bielefeld)

  • Alfred Greiner

    (Bielefeld University)

  • Benteng Zou

    (Bielefeld University)


In this paper we analyze dynamic incentives of a firm to invest in production facilities in a less developed country with lower wage costs and lower productivity. Foreign investment induces that, due to technological spillovers, productivity of local firms in the foreign country increases. Firms from both regions compete on the same oligopolistic market. We show that there is one steady state with a positive stock of foreign direct investment in the less developed region and, in addition, there is a continuum of (neutrally stable) steady states where the firm never invests abroad. We analyze effects of variations of parameters on the steady state values, numerically study transitional dynamics and give a picture of the global dynamics. Finally, we analyze how the speed of technology transfer, and the wage level in the home country affects the total labor income earned in the home country

Suggested Citation

  • Herbert Dawid & Alfred Greiner & Benteng Zou, 2006. "Foreign direct investment in the presence of technological spillovers and international competition," Computing in Economics and Finance 2006 267, Society for Computational Economics.
  • Handle: RePEc:sce:scecfa:267

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    More about this item


    Foreign direct investment; technology spillovers; optimal control;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis


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