Foreign Direct Investment with Endogenous Technology Choice
26 Pages Posted: 11 Nov 2014 Last revised: 7 Mar 2015
Date Written: November 10, 2014
In this paper, we analyze optimal foreign direct investment of a firm which operates in a duopolistic market. We characterize a technology spillover threshold and show that for an intensity of spillovers below this threshold, there is a unique locally asymptotic stable steady state with a positive capital stock in the developing country. Furthermore, we characterize how optimal foreign investment patterns and the investor's value function depend on the level of technology transferred and characterize the optimal level to be used for the foreign direct investment.
Keywords: Foreign direct investment, technology spillovers, optimal control
JEL Classification: F21, D92, C61
Suggested Citation: Suggested Citation