Foreign Direct Investment and Spillovers: Gradualism May Be Better
30 Pages Posted: 3 Dec 2004
There are 2 versions of this paper
Foreign Direct Investment and Spillovers: Gradualism May Be Better
Foreign Direct Investment and Spillovers: Gradualism May Be Better
Date Written: October 2004
Abstract
The standard argument says that in the presence of positive spillovers foreign direct investment should be promoted and subsidized. In contrast, this Paper claims that the very existence of such spillovers may require temporarily restricting and taxing inward FDI. Our argument in favor of gradual liberalization is based on two stylized features of spillovers: first, technology transfers - and subsequent spillovers - are limited by the economy's absorptive capacity; and second, spillovers take time to materialize. By letting in capital more gradually, initial investment has the time to create spillovers - and upgrade the economy's absorptive capacity - before further investment occurs. This allows subsequent capital inflows to benefit from greater technology transfers. As a result, the economy converges to a steady state with a superior technology and a greater capital stock.
Keywords: Foreign direct investment, gradualism, big bang, spillovers, liberalization, absorptive capacity, transition economies
JEL Classification: F20, O30, P20
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
By David T. Coe and Elhanan Helpman
-
By David T. Coe
-
International R&D Spillovers and Institutions
By David T. Coe, Elhanan Helpman, ...
-
International R&D Spillovers and Institutions
By David T. Coe, Elhanan Helpman, ...
-
International R&D Spillovers and Institutions
By David T. Coe, Elhanan Helpman, ...
-
Are There International R&D Spillovers Among Randomly Matched Trade Partners?: A Response to Keller
-
By David T. Coe, Elhanan Helpman, ...
Foreign Direct Investment and Spillovers: Gradualism May Be Better
This is a CEPR Discussion Paper. CEPR charges a fee of $8.00 for this paper.
If you wish to purchase the right to make copies of this paper for distribution to others, please select the quantity.
