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Risk and the Technology Content of FDI:A Dynamic Model

Author

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  • 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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    References listed on IDEAS

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    Cited by:

    1. repec:eee:reveco:v:49:y:2017:i:c:p:499-514 is not listed on IDEAS
    2. 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.
    3. Engemann, Martina & Lindemann, Henrike, 2013. "Testing the O-ring theory for FDI," Discussion Papers 24/2013, Deutsche Bundesbank.

    More about this item

    Keywords

    Foreign Direct Investment; Technology; Risk; spillover; Dynamic;

    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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