Risk, Learning, and the Technology Content of FDI: A Dynamic Model

This paper builds a dynamic model of catching up to examine the policy stance of developing countries in attracting inward FDI. We show that the observably evident risk of FDI failure sets a minimum threshold on the South's technology capacity and furthermore creates a limit on the technology c...

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Bibliographic Details
Main Authors: CHANG, Pao Li, LU, Chia-Hui
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2010
Subjects:
Online Access:https://ink.library.smu.edu.sg/soe_research/1163
https://ink.library.smu.edu.sg/context/soe_research/article/2162/viewcontent/FDI_Technology.pdf
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Institution: Singapore Management University
Language: English
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Summary:This paper builds a dynamic model of catching up to examine the policy stance of developing countries in attracting inward FDI. We show that the observably evident risk of FDI failure sets a minimum threshold on the South's technology capacity and furthermore creates a limit on the technology content of inward FDI. We provide economic foundations for the determinants of the FDI risk and formalize how the risk factor evolves over time as the South moves up its technology ladder. The model offers an insightful and tractable framework for empirical studies with a dynamic content, and reconciles many relevant empirical observations and policy implications.