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Risk and the Technology Content of FDI:A Dynamic Model

  • Pao-Li Chang

    ()

    (School of Economics, Singapore Management University)

  • Chia-Hui Lu

    ()

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

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.

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Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 07-2011.

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Length: 47 pages
Date of creation: Aug 2011
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:07-2011
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