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Risk and the Technology Content of FDI:A Dynamic Model

Author

Listed:
  • Pao-Li Chang

    (School of Economics, Singapore Management University)

  • Chia-Hui Lu

    (Department of Economics and Finance, City University of Hong Kong)

Abstract

This paper incorporates risk into the FDI decisions of rms. 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 pattern of FDI in China by US and Taiwanese manufacturing rms.

Suggested Citation

  • Pao-Li Chang & Chia-Hui Lu, 2011. "Risk and the Technology Content of FDI:A Dynamic Model," Working Papers 07-2011, Singapore Management University, School of Economics.
    • Handle: RePEc:siu:wpaper:07-2011
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    File URL: https://mercury.smu.edu.sg/rsrchpubupload/19389/FDI_Technology_WP.pdf
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    Cited by:

    1. Chang, Pao-Li & Lu, Chia-Hui, 2012. "Risk and the technology content of FDI: A dynamic model," Journal of International Economics, Elsevier, vol. 86(2), pages 306-317.
    2. Tang, Meng-Chi, 2017. "Total factor productivity or labor productivity? Firm heterogeneity and location choice of multinationals," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 499-514.
    3. Hu, Gang-Gao, 2021. "Is knowledge spillover from human capital investment a catalyst for technological innovation? The curious case of fourth industrial revolution in BRICS economies," Technological Forecasting and Social Change, Elsevier, vol. 162(C).
    4. He, Zheng & Liu, Zhengkai & Zhao, Yiaxin & Zhao, Yuanjun, 2024. "Is more digital always better? A nonlinear perspective on corporate digital transformation and OFDI," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    5. Chi, Meiqing & Muhammad, Sulaman & Khan, Zeeshan & Ali, Shahid & Li, Rita Yi Man, 2021. "Is centralization killing innovation? The success story of technological innovation in fiscally decentralized countries," Technological Forecasting and Social Change, Elsevier, vol. 168(C).
    6. Chang, Pao-Li & Chen, Yuting, 2021. "Informal institutions and comparative advantage of South-based MNEs: Theory and evidence," Journal of Development Economics, Elsevier, vol. 148(C).
    7. Luo, Changyuan & Chen, Zhitao, 2024. "Why has China invested heavily in countries with weak market environments? A new explanation and implications for China-Africa economic cooperation," China Economic Review, Elsevier, vol. 88(C).
    8. Engemann, Martina & Lindemann, Henrike, 2013. "Testing the O-ring theory for FDI," Discussion Papers 24/2013, Deutsche Bundesbank.

    More about this item

    Keywords

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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