Foreign Investment and Technology Transfer: a Simple Model

34 Pages Posted: 15 Jan 2007 Last revised: 9 Aug 2010

See all articles by Magnus Blomstrom

Magnus Blomstrom

Stockholm School of Economics - Department of Economics; National Bureau of Economic Research (NBER), at New York; Centre for Economic Policy Research (CEPR)

Jian-Ye Wang

International Monetary Fund (IMF) - European Department

Date Written: May 1989

Abstract

This paper develops a model in which international technology transfer through foreign direct investment emerges as an endogenized equilibrium phenomenon, resulting from the strategic interaction between subsidiaries of multinational corporations and host country firms. The model explicitly recognizes two types of costs -- the costs to the multinational of transferring technology to its subsidiaries and the learning costs of domestic firms -- and treats technology transfer in a game theoretic context. The model points to the importance of the learning efforts of host-country firms in increasing the rate at which MNCs transfer technology. The paper also explores some of the reasons why learning investment in host country firms may be suboptimal.

Suggested Citation

Blomstrom, Magnus and Wang, Jian-Ye, Foreign Investment and Technology Transfer: a Simple Model (May 1989). NBER Working Paper No. w2958. Available at SSRN: https://ssrn.com/abstract=461390

Magnus Blomstrom (Contact Author)

Stockholm School of Economics - Department of Economics ( email )

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National Bureau of Economic Research (NBER), at New York

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Centre for Economic Policy Research (CEPR)

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Jian-Ye Wang

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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